Borrowers Get Ahead of Tax Changes, Refinance Activity Up in December

The new tax law appeared to have slightly influenced mortgage originations in December, ahead of its actual implementation. Ellie Mae, in its December Origination Insight Report, said the share of refinances ticked up and closing rates on both purchases and refinances increased from November, across all loan types. Both increases were possibly due in part to borrowers trying to lock in the existing mortgage interest deduction limit ($1 million) before the new $750,000 limit kicked in on January 1.

The closing rates on all loans increased from 70.9 percent to 71.2 percent while closing rates on refinances rose from 65.1 percent to 65.6 percent and that for purchases increased to 76.1 percent from 75.5 percent. Closing rates also increased across FHA, conventional and VA loans for both purchases and refinances.

The share of loans that were for refinancing rose one percentage point to 40 percent, a point taken away from purchase loans that dipped to 60 percent.  In addition to any effects from the tax law, the higher refinance share is a seasonal effect of fewer home purchases during the holiday season. The distribution of loans among lenders was unchanged for the fourth straight month with conventional loans at 66 percent, FHA loans accounting for 20 percent and the VA with a 10 percent share.

Closing time for all loans increased slightly to 44 days, up 1 day from the previous month.

"As we closed out 2017 we saw an increase in the percentage of refinances due to seasonality as fewer purchases take place in the fourth quarter, and likely homebuyers were taking advantage of the mortgage deductibility limit before it decreased to $750,000 on December 15th," said Jonathan Corr, president and CEO of Ellie Mae. "We probably can also attribute some of the increase in closing rates to last-minute efforts by borrowers to close loans before the tax changes took effect."

Ellie Mae's Origination Insight Report mines data from a sampling of approximately 80 percent of all mortgage applications that were initiated on its mortgage management system. The company says its report is a strong proxy of the underwriting standards employed by lenders across the country.