ICE: Falling interest rates boost refinancing retention to the highest level in 3.5 years

ICE found overall mortgage performance was strong in October, with the national default rate falling 7 basis points (bps) to 3.34%. That is 11 basis points lower than last year and 53 basis points lower than the pre-pandemic benchmark of October 2019.

Andy Walden, head of ICE’s mortgage and housing market research, said the modest rate cut this fall led to a jump in mortgage applications and contributed to the strong performance.

“We are now seeing the highest concentration of rate and term refinances in nearly five years, driven almost entirely by borrowers holding 2023-2025 vintage loans,” he said. “Specifically, the market has become more interest rate sensitive as hundreds of thousands of borrowers move in and out of the refinancing stimulus with small daily interest rate shifts.”

Nonbank servicers retained borrowers at nearly three times the rate of banks: 35% compared to 13%. Retention was highest for Federal Housing Administration (FHA) and The U.S. Department of Veterans Affairs (VA) loans at 36%, followed by loans backed by Fannie Mae And Freddie Mac at 25%. Private securitized loans had the lowest retention, at 6%.

Interest rate and term refinancings made up 62% of all refi activity in October, the highest share in almost five years, ICE said. Nearly all (95%) interest rate and term refinancings in September and October involved borrowers with loans from the 2023-2025 period.

These borrowers had an average loan balance of $505,000 and a credit score of 762, and they lowered their mortgage rates by an average of 0.92 percentage points, saving about $200 per month.

Home loan and home equity line of credit (HELOC) activity also increased. Second lien loan drawdowns rose in the third quarter to the highest level since 2007, as homeowners with low-interest first mortgages looked for alternatives to tapping into equity without refinancing their primary loan.

Improved affordability also played a role, helped by tighter interest rate spreads on government bonds. According to the ICE report, affordability has improved year over year in all 100 major U.S. metro areas.

The average mortgage rate hovered around 6.25% in mid-November, making the monthly payment for a median-priced home about $2,126, or 29.7% of the median household income. ICE said that while that is still high by historical standards, it is the lowest share since early 2023.

“ICE’s 2025 Borrower Insights Survey found that 78% of borrowers purchase only one or two options before choosing a lender,” said Tim Bowler, president of ICE Mortgage Technology. “In a sensitive interest rate environment, this limited shopping behavior reinforces the importance of being the first to reach motivated borrowers.”

Foreclosure activity remains historically low, but is increasing, ICE notes. About 79,000 loans were foreclosed between October and November, which is 15% below 2019 levels but the highest two-month total in more than five years.

Inventory of active foreclosures is up 20% from a year earlier, and October’s 7,700 foreclosures marked a five-year high, though it remains 40% below pre-pandemic levels.

FHA and VA loans are driving the increase, accounting for 85% of new starts and nearly all of the growth in active cases and sales. FHA foreclosures are up about 30,000 from last year, while VA foreclosures are up about 12,000.