The CFPB recently released a report entitled Data Point: 2022 Mortgage Market Activity and Trends based on 2022 data reported by lenders under the Home Mortgage Disclosure Act (HMDA).
The CFPB addresses various 2022 lending results, with many results reflecting changes from 2021 to 2022 based on increases in mortgage interest rates and other economic factors. Among other points, the CFPB notes that:
- The total number of mortgage loan applications decreased from approximately 23.3 million in 2021 to approximately 14.3 million in 2022, a decrease of approximately 38.6%.
- The total number of mortgage loan originations decreased from approximately 15.0 million in 2021 to approximately 8.4 million in 2022, a decrease of approximately 44.1%.
- With closed-end, site-built single-family mortgage originations, the total number of purchase money loans decreased from approximately 5.1 million in 2021 to approximately 4.1 million in 2022 (approximately a 19.5% decrease), and the total number of refinance loans decreased from approximately 8.3 million in 2021 to approximately 2.2 million in 2022 (approximately a 73.2% decrease).
- Most of the refinance loans were cash-out refinance loans. (This makes sense based on a number of factors. The rise in interest rates significantly reduced refinance loans intended to obtain better loan terms. The increase in home prices created equity that homeowners could tap into. Inflationary and other economic pressures created a need for cash.)
- Home equity line of credit (HELOC) originations increased from approximately 962,000 in 2021 to approximately 1.4 million in 2022, an increase of approximately 41.2%.
- The CFPB notes that one factor likely contributing to the increase was that for 2021 a temporary HELOC reporting threshold of at least 500 originations in each of the prior two calendar years was still in place, and for 2022 the permanent threshold of at least 200 originations in each of the prior two calendar years became effective. The number of institutions reporting HELOC originations increased from 936 in 2021 to 1,150 in 2022.
- The CFPB observes that the “change in reporting threshold alone, however, cannot explain all of the increase in HELOC origination volume.” The CFPB surmises that the increase in HELOC originations also is most likely “due to some consumers resorting to HELOCs instead of cash-out refinance loans to extract home equity in a high interest rate environment.”
- The median total loan costs for home purchase loans increased from $4,889 in 2021 to $5,954 in 2022, an increase of 21.8%. The CFPB advises that this “represents the largest annual increase of total loan costs since this information was first collected in the HMDA data in 2018.” The median total loan costs for refinance loans increased from $3,336 in 2021 to $4,979 in 2022, an increase of 49.3%. The CFPB notes that Black and Hispanic White borrowers experienced higher increases in median total loan costs in 2022 compared to 2021 than Asian and Non-Hispanic white borrowers. The CFPB notes that it “believe[s] that this is the first time that a sharp rise in total loan costs that borrowers had to pay upfront is documented.”
- It appears that the payment of discount points by borrowers was a significant factor contributing to the increase in total loan costs. The CFPB advises that a higher percentage of borrowers reported paying discount points in 2022 than any other years since 2018, when discount points were first reported with HMDA data. The CFPB surmises that the increase in the percentage of “borrowers paying discount points could be due to the higher interest rate environment incentivizing borrowers to buy down the interest rate that would have been otherwise regarded as too high.”
- With first lien closed-end home purchase loans secured by single-family principal residences and not for commercial/business purpose, the percentage of loans with discount points in 2022 was approximately 50.2%, compared to approximately 29.2%, 31.4%, 32.7% and 32.1% of home purchase loans in 2018, 2019, 2020 and 2021, respectively. In dollars, the median discount point amount was approximately $2,370 in 2022, compared to $1,054, $1,098, $1,252, and $1,225 in 2018, 2019, 2020 and 2021, respectively.
- With first lien closed-end refinance loans secured by single-family principal residences and not for commercial/business purpose, the percentage of loans with discount points in 2022 was approximately 60.8%, compared to approximately 44.3%, 38.2%, 38.1%, and 40.9% of refinance loans in 2018, 2019, 2020 and 2021, respectively. In dollars, the median discount point amount was approximately $2,878 in 2022, compared to $1,690, $1,782, $1,667, and $1,619 in 2018, 2019, 2020 and 2021, respectively.
- Another factor that may have contributed to the increase in loan costs was that when rates are low, often the borrower will opt for an above market rate in return for the lender not imposing various closing costs. In higher rate environments, borrowers have a greater incentive to pay closing costs in return for a lower rate.
- The median loan amount for home purchase loans in 2022 was approximately $295,000 for non-Hispanic White borrowers, $297,000 for Black borrowers, $300,000 for Hispanic White borrowers, and $449,000 for Asian borrowers. The CFPB notes for the first time since 2018 the median loan amount of home purchase loans for non-Hispanic White borrowers ranked below the median loan amounts of Black and Hispanic White borrowers.
- The median loan amount for refinance loans in 2022 was approximately $216,000 for Black borrowers, $220,000 for non-Hispanic White borrowers, $238,000 for Hispanic White borrowers, and $370,000 for Asian borrowers.
- The median credit scores for home purchase loans in 2022 were 695 for Black borrowers, 718 for Hispanic White borrowers, 751 for Asian borrowers and 762 for non-Hispanic White borrowers.
- For home purchase applications, the overall denial rate increased from 8.3% in 2021 to 9.1% in 2022. For refinance applications, the overall denial rate increased from 14.2% in 2021 to 24.7% in 2022.
- For home purchase applications, in 2022 the denial rates were 16.8% for Black applicants, 12.0% for Hispanic White applicants, 9.6% for Asian applicants, and 6.7% for non-Hispanic White applicants. The corresponding denial rates in 2021 were 15.7%, 9.7%, 7.9%, and 6.3%, respectively.
- For refinance applications, in 2022 the denial rates were 35.8% for Black applicants, 27.6% for Hispanic White applicants, 22.9% for Asian applicants, and 20.2% for non-Hispanic White applicants. The corresponding denial rates in 2021 were 23.6%, 17.6%, 12.3%, and 11.8%, respectively.
In a press release announcing the Report, the CFPB noted that “[o]verall affordability declined significantly, with borrowers spending more of their income on mortgage payments and lenders more often denying applications for insufficient income.”
In a separate statement, CFPB Director Rohit Chopra stated:
“The significant changes in the rate environment in 2022 are having considerable impacts on the mortgage market. I expect these trends will continue in 2023 given further increases in average mortgage interest rates.
In response, the CFPB will be devoting more attention to ensure that borrowers can sufficiently navigate alternatives to foreclosure when faced with financial distress. For example, we are currently exploring some amendments to mortgage servicing standards.
We will also continue to look for ways that the refinancing process can be simpler for borrowers, which will be particularly important if the rate environment becomes less restrictive.
We see a growing need for borrowers to understand their options when it comes to tapping their home equity, as well as the factors they should consider when purchasing discount points. Finally, we will continue to work with federal and state law enforcement to ensure that mortgage market participants are adhering to appropriate consumer protection and fair lending laws.”
As previously reported, in September 2022 the CFPB issued a Request for Information in which it sought input on improving refinance opportunities, particularly for borrowers with smaller balance loans, and on approaches for forbearances and loss mitigation. The CFPB noted that “if there are more limited opportunities to refinance smaller balance loans, Black and Hispanic borrowers and borrowers with low-to-moderate incomes would be disproportionately affected, as they are more likely to own lower value homes.” The CFPB also noted that it “is focusing on whether it should take steps to spur automatic and streamlined short and long-term loss mitigation efforts for borrowers impacted by temporary financial hardship in general, and not just related to the pandemic.”