Homebuyers, Owners, & Renters
      
      Homebuyers, Owners, and Renters

          
                        Business Partners
                  Single-Family Business

Helping lenders serve homebuyers and homeowners with affordable mortgages
    
          Multifamily Business

Financing for quality, affordable rental housing in every market, every day
    
          Capital Markets

Reducing risk and enhancing housing finance liquidity
          About Us
                toggle
                Who We Are
                                              toggle
                        Awards and Recognition
                                                      Diversity and Inclusion
                                                              toggle
                                Employee Resource Groups
                                                                      Progress With Purpose
                                                      Employee Code of Conduct
                                                      Community Engagement
                                                      History
                                      What We Do
                                              toggle
                        Duty to Serve
                                                              toggle
                                Manufactured Housing
                                                                      Affordable Housing Preservation
                                                                      Rural Housing
                                                                      Research Initiatives
                                                                      Colonias Investment Areas
                                                      Homeownership
                                                              toggle
                                Access to Mortgage Credit
                                                                      Restrictive Covenants
                                                      Innovation
                                                      Mortgage Finance in America
                                                      Financial Performance
                                                      Disaster Resiliency and Relief
                                                      Pilot Transparency
                                      Leadership Team
                                      Corporate Governance
                                              toggle
                        Corporate Governance Guidelines
                                                      Fannie Mae Charter
                                                      Board of Directors
                                                      Committees
                                                      Committee Charters
                                                      Code of Conduct
                                                      Bylaws
                                                      Contacting the Board of Directors
                                                      Housing Reports
                                      Investor Relations
                                              toggle
                        Quarterly and Annual Results
                                                      Annual Reports
                                                      SEC Filings
                                                              toggle
                                All SEC Filings
                                                                      Annual Filings
                                                                      Quarterly Filings
                                                                      Current Reports
                                                                      Section 16 Filings
                                                                      Proxy Filings
                                                      Additional Disclosures
                                                              toggle
                                Monthly Summary
                                                                      Capital Disclosures
                                                      Stock Information
                                                      Current Stock Information
                                                      Contact Information
                                      ESG
                                              toggle
                        Learn about our business
                                                      Environmental
                                                      Social
                                                              toggle
                                Equitable Housing Finance Plan
                                                      Governance
                                                      Sustainable Bonds
                                                              toggle
                                Green Bonds
                                                                      Social Bonds
                                                      Reports & Disclosures
                                                              toggle
                                2021 ESG Report
                                      Research & Insights
                                              toggle
                        Forecast
                                                              toggle
                                Monthly Archive
                                                                      Weekly Archive
                                                      Surveys & Indices
                                                              toggle
                                National Housing Survey
                                                                      Mortgage Lender Sentiment Survey
                                                                      Fannie Mae Home Price Index
                                                                      Refinance Application-Level Index
                                                                      Special Topics
                                                      Publications
                                                              toggle
                                Fannie Mae Working Papers
                                                                      Housing Insights
                                                                      Partner Research
                                                                      Publications Archive
                                                      Perspectives
                                                              toggle
                                Archive - 2020
                                                                      Archive - 2021
                                                                      Archive - 2022
                                                                      Archive - 2023
                                      Newsroom
                                              toggle
                        News
                                                      Media Resources
          
                        Careers
                toggle
                Our Teams
                                              toggle
                        Corporate Teams
                                                      Data & Analytics
                                                      Digital & Technology
                                                      Mortgage & Customer Solutions
                                                      Risk Management
                                      Life at Fannie Mae
                                      Diversity & Inclusion
                                      Benefits & Professional Development
                                      Campus
          
                        Contact Us
                      
            Google Translate Disclaimer
            The Google Translate feature is a third-party service that is available for informational purposes only. Fannie Mae is unable to guarantee the accuracy of any translation resulting from the tool and is not responsible for any event or damage that occurs as a result of using the translations generated by the Google Translate feature.
            OK
  Translate
        Translation Disclaimer
          Chinese, Traditional
            English
            Filipino
            Korean
            Spanish
            Vietnamese
 FM Site Nav
  

        

Homepage
                    
      Fannie Mae logo
    Toggle navigation
      Rent
                
                All Renter Resources
                                      The Rental Process
                                      Make Your Rent Count
                                      Credit Basics
                      
            Buy
                
                All Homebuyer Resources
                                      7 Steps to Homeownership
                                      HomeView Homeownership Education Course
                      
            Own
                
                All Homeowner Resources
                                      Make the Most of Your Home
                                      Refinancing Your Mortgage
                                      When It’s Time to Sell
                      
            Get Relief
                  Manage Financial Uncertainty

All Resources to Manage Financial Uncertainty

Help for Homeowners

Help for Renters

Protect Yourself from Fraud
    
          Recover from a Disaster

All Resources for Recovering from a Disaster

Recovery Assistance for Homeowners

Recovery Assistance for Renters

Protect Yourself from Fraud
                      
            Calculators & Tools
                
                All Calculators & Tools
                                      Tools for Renters
                                      Tools for Homebuyers
                                      Tools for Homeowners
                                      HomeView® Homeownership Education Course
                                      Glossary
                                      Mobile AppToggle search
 Skip to main content
          
    
    Home
                        Research and Insights
                        Perspectives
                        Introducing the Fannie Mae Refinance Application-Level Index, a Leading Indicator for Refinance and Prepayment Activity
    Perspectives Blog
Introducing the Fannie Mae Refinance Application-Level Index, a Leading Indicator for Refinance and Prepayment Activity
June 14, 2022
Fannie Mae’s new Refinance Application-Level Index (RALI) provides weekly insights into refinance application activity, enabling the industry to enhance modeling and analysis of refinances and prepayments
Devang Doshi
    Devang Doshi
    Senior Vice President, Capital Markets - Single-Family Products
              Douglas G. Duncan headshot
    Douglas Duncan
    Senior Vice President and Chief Economist
*Fannie Mae's new Refinance Application-Level Index (RALI) provides weekly insights into refinance application activity, enabling the industry to enhance modeling and analysis of refinances and prepayments.*

Fannie Mae receives mortgage applications every day from more than 1,900 lenders supporting single-family borrowers across the country, providing comprehensive and timely insights into mortgage activity and trends. We are now bringing some of those insights to the market with our new Refinance Application-Level Index (RALI). This weekly leading indicator of refinance application activity sources data from Fannie Mae's Desktop Underwriter® (DU®), the industry's most widely used automated underwriting system (AUS). We believe these early insights into refinance activity will support broader market analysis, including lender forecasts of origination volumes and investor forecasts of mortgage-backed security (MBS) prepayment activity.

From 2020 to 2021, historically low interest rates resulted in record levels of mortgage refinance applications and originations and, in turn, mortgage prepayments. Fannie Mae estimates that borrowers refinanced $5 trillion of mortgage debt in 2020 and 2021, resulting in 16.9 million Fannie Mae and Freddie Mac loans prepaying during that same time. Forecasting refinance originations and prepayments also became more challenging over the last few years, as the observed relationship between refinance incentive and prepayments has evolved. These changes have been attributed to shifts in origination channels, lender mix, and product mix.

Lenders throughout the industry use DU in the underwriting process not only for conventional loans delivered to the GSEs, but also for government, non-conforming, and jumbo loans. Based on our analysis of the Home Mortgage Disclosure Act (HMDA) data, DU processed 4.6 million closed refinance loans, worth around $1.3 trillion in originations, in 2020 – more than any other AUS in the industry. DU's unmatched scale ensures that users of the RALI benefit from an index backed by significant volumes of refinance applications from a broad array of lenders with exposure to different mortgage products. Further, because refinance applications are submitted to DU at the beginning of the loan origination process *prior* to the existing loan paying off, the RALI provides market participants a four-to-six-week lead on refinance origination and prepayment activity. We believe that sharing this data with the wider mortgage industry will improve transparency in the market and facilitate improved origination and prepayment projections. These modeling improvements should, in turn, support continued market liquidity without the need for supplemental loan disclosures (or related services) that risk compromising borrower privacy.

**How We Constructed the RALI1**

The RALI is constructed using standard industry methodology for mortgage application indices. Specifically, we:

Filter DU records to isolate legitimate refinance applications2 that could result in new refinance originations (and the associated prepayments of existing loans).
	Create weekly application measures by aggregating applications from Saturday to Friday.
	Set the first week of 2004 as the base period, giving it a value of 100. Subsequent weeks reflect proportional changes from the base period. We provide the historical series of the RALI, back to 2004, to enable users to perform time series analysis.We offer two RALI measures to meet the needs of users:

RALI ($): Based on dollar volume measured by unpaid principal balance (UPB); and
	RALI (count): Based on loan count.These two measures allow users to track growth rates in application volume and loan count.

The RALI is not adjusted for seasonality or for holidays, although we anticipate our weekly commentaries will note when volume is impacted by a holiday. Any revisions to the RALI, which we expect to be minimal, will be made on an annual basis in the second week of each year, and users will be notified through our website to ensure transparency and clarity.

**How Does the RALI Perform?**

The RALI is a highly effective measure of refinance activity, correlated with changes in mortgage rates (Chart 1), origination activity (Chart 2), and MBS prepayments (Chart 3).

As illustrated in Chart 1, the RALI ($) has been responsive to both decreasing and increasing mortgage rate environments. When there is a decline in mortgage rates, we see a corresponding increase in the level of refinance applications and, as a result, the RALI. In 2022, the RALI ($) has declined by 63 percent between the week ending January 7 and the week ending June 10. While refinance volume has declined in 2022 relative to 2021 and 2020, the RALI ($) may fall even further if higher interest rates persist, consistent with our May 2022 forecast. The latest reading of RALI ($), for the week ending June 10, showed that refinance applications will need to fall another 50 percent to reach the prior trough registered in the fourth quarter of 2018.

**Chart 1. RALI ($) Performance in Various Interest Rate Environments**

Chart 1. RALI ($) Performance in Various Interest Rate Environments
We find that the RALI ($) is highly correlated with our own estimates of total market refinance originations. A simple linear regression of the quarterly RALI (with one-month lag) and industry refinance origination volumes, as estimated by Fannie Mae, between the first quarter of 2007 and the fourth quarter of 2021 (Chart 2) yields an R-squared of 90 percent.

**Chart 2. Closely Tracks Refinance Origination Estimates**

Chart 2. RALI ($) Closely Tracks Refinance Origination Estimates
We believe the RALI ($) will be particularly insightful for MBS investors, providing a view into prepayment activity that may occur in the next four to six weeks. We observe strong historical correlations between prepayments and the RALI ($) lagged by one month (Chart 3). Over the period of January 2004 through December 2021, the monthly correlation between the RALI and GSE prepayment was 92 percent. During the recent refinance wave of 2020 and 2021, when significant prepayment activity took place, the correlation remained high at 86 percent.

**Chart 3. RALI ($) vs. Prepayment Volumes Since 2004**

Chart 3. RALI ($) vs. Prepayment Volumes Since 2004
We designed the RALI to be a valuable tool for lenders, investors, and other market participants in the mortgage industry. We believe the additional transparency RALI brings to refinance market activity will improve prepayment modeling performance and investor confidence, and it has the potential to bring improved liquidity to the MBS market – ultimately benefitting homeowners through lower borrowing costs.

Fannie Mae’s RALI will be published on a weekly basis here according to this calendar. To learn more, please access the RALI methodology and FAQs.

*The authors thank**Sonja Beaubien, Matt Classick, Hamilton Fout, Yasaman Hekmat, Tian Liu, Aleksandrs Rozens, Nicholas Sapirie, Daniel Schoshinski, and Kevin Vineski for valuable contributions in the creation of this commentary and the design of the research. Of course, all errors and omissions remain the responsibility of the authors.*

*Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economic & Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR Group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR Group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.*

1 For additional background material on the RALI's construction, please review our methodology documentation on theFannie Mae's Research and Insights web page.

2 Because the RALI includes withdrawn or denied applications, users should follow standard methodology by considering potential changes in the "pull-through" rate, or the percentage of applications that result in origination and prepayment, to arrive at an appropriate estimate of refinance and prepayment volumes.

TOPICS
  
Fannie Mae Corporate
  
  
      Twitter
              Facebook
              Linkedin
              Email
Research and Insights
                                                              Forecast
                                    Surveys & Indices
                                    Publications
                                    Perspectives
                                                              Archive - 2024
                                    Archive - 2023
                                    Archive - 2022
                                    Archive - 2021

Our Company
    About Us
      Contact Us
      Careers
      Investor Relations
      Newsroom
      Research & Insights
      ESG
  Business Partners
    Single-Family Business
      Multifamily Business
      Capital Markets
	      Suppliers
      Developer Portal
  Homebuyers, Owners, & Renters
    Educational Resources
      Credit Basics
      HomeView Homeownership Education Course
      HomePath - Search for Homes
      Make Your Rent CountCalculators & Tools
      All Calculators and Tools      Glossary of Key Terms
      Mortgage Calculator
      Down Payment Assistance Search Tool
      Mobile AppLet Us Help You
      Contact a Housing Counselor
      Manage Financial Uncertainty
      Recover from a Disaster
    
    
  

      
Social media
  

        
            Follow us
          Follow us
          Facebook
          Twitter
          LinkedIn
          Instagram
    Footer
  

        
            Legal
          Privacy
          Digital Accessibility
                Cookie Preferences
            © 2024 Fannie Mae