CFPB: Rate Environment Dictated the Mortgage Market in 2022

The Consumer Financial Protection Bureau (CFPB) has released “Data Point: 2022 Mortgage Market Activity and Trends,” its annual report on residential mortgage lending activity and trends.

In 2022, mortgage applications and originations declined markedly from the prior year, while rates, fees, discount points, and other costs increased. The report found that overall affordability declined significantly, with borrowers spending more of their income on mortgage payments and lenders more often denying applications for insufficient income. Most refinances during the reported period were cash-out refinances, and, in a reversal of recent trends, the median credit score of refinance borrowers declined below the median credit score of purchase borrowers. As in years past, independent lenders continued to dominate home mortgage lending, with the exception of home equity lines of credit (HELOCs).

"The higher interest rate environment had profound effects on the mortgage market in 2022, with borrowers paying much more in monthly payments,” said CFPB Director Rohit Chopra. “These trends are likely to continue given further increases in interest rates in 2023.”

Key findings from this year’s analysis include:

• The total number of applications and originations dropped significantly in 2022, with applications decreasing by about nine million or 38.6%, and originations decreasing by 6.6 million or 44.1%.
• In 2022, 4,451 financial institutions reported closed-end applications and originations excluding reverse mortgages, up from 4,332 in 2021, and close to 4,466 in 2020. The overall market volume of closed-end transactions excluding reverse mortgages, however, decreased after increasing over the past few years, from 21.5 million applications in 2021 to 11.8 million in 2022. The financial institutions are broadly categorized into depository institutions (DIs) and non-depository institutions (non-DIs). DIs included 1,945 banks and thrifts of which 1,168 were small (assets less than $1 billion), as well as 1,455 credit unions. Non-DIs included 93 mortgage companies affiliated with DIs and 958 independent mortgage companies.
• Lenders reported approximately 6.7 million closed-end site-built single-family originations in 2022, a 50.9% decrease from 13.7 million originations in 2021. The significant decline occurred in both home purchase and refinance activities, but was more prominent in the refinance arena. The refinance closed-end site-built single-family originations fell from 8.3 million in 2021 to 2.2 million in 2022, a reduction of 73.2%.
• Cash-out refinances comprised majority of refinance originations, with most of the refinance originations left in the market a small number of cash-out refi loans. Meanwhile, the total number of HELOC originations among reporters in both 2021 and 2022 increased by 33.3% over that time period—most likely due to some consumers using HELOCs instead of cash-out refinance loans in a high interest rate environment.
• Black and Hispanic white borrowers, borrowers of low- or moderate-income, and borrowers taking out loans secured with properties in low- or moderate-income (LMI) neighborhoods accounted for a larger share of refinance loans in 2022 than their shares in 2021, against the backdrop of fast rising interest rates and overall sharp decline of the refi volume.
• Borrowers paid much more in costs and fees, as the median total loan costs for home purchase loans in 2022 was $5,954, up by 21.8% from $4,889 in 2021. 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 reached $4,979 in 2022, compared to $3,336 in 2021, representing a 49.3% increase. Notably, Hispanic white and Black borrowers experienced higher increases in median total loan costs in 2022, compared to 2021, than Asian and Non-Hispanic white borrowers.
• A higher percentage of borrowers reported paying discount points in 2022 than in any other year since this data point was collected in the HMDA data. Additionally, borrowers who paid discount points also ended up paying a much higher dollar amount in points.
• Lenders increasingly denied applicants for insufficient income, as Black and Hispanic white borrowers continued to have lower median credit scores and higher denial rates, in addition to paying higher median interest rates and total loan costs, compared to non-Hispanic white and Asian borrowers.
• The average monthly payment excluding taxes and insurance for borrowers taking out a conventional conforming 30-year fixed-rate mortgage rose from $1,400 in December 2021 to $2,045 in December 2022–a 46.1% increase in a span of one year. This increase was driven almost entirely by the rise in mortgage interest rates. Consequently, the average debt-to-income ratio (DTI) rose significantly for all groups, especially for Hispanic white and Black borrowers.
• Compared to 2021, DTI became more likely to be reported as a denial reason for denied applications across racial/ethnic groups in 2022.

“The home purchase origination volume clearly displays a strong seasonal pattern, as home sales typically fluctuate as the number of home sellers and buyers entering the market changes with the seasons,” stated the report.

This marked the fifth year that the data reflect changes implemented by the 2015 Home Mortgage Disclosure Act (HMDA) rule, which implemented statutory changes in the Consumer Financial Protection Act and provided greater information to the public about home mortgage lending.

Since 1975, the HMDA has required financial institutions to collect and make public certain loan-level information on mortgage applications and originations. In 2011, Congress transferred responsibilities for implementing the Act from the Federal Reserve Board of Governors to the CFPB. Since then, the CFPB has worked to improve public access to the data, including through an annual report analyzing the information received.