The Consumer Financial Protection Bureau’s (CFPB) report on
2022 trends in residential lending reveals a notable drop in mortgage
applications and originations from the year prior. This drop coincided with an
increase in rates, fees, discount points and other costs, according to the
bureau’s analysis of Home Mortgage Disclosure Act (HMDA) data recorded during
that timeframe.
The report points to a notable decrease in general affordability
in the residential mortgage marketplace, leading borrowers to allocate more of
their earnings toward mortgage obligations, and lenders are rejecting more applications
due to insufficient borrower income.
“The significant changes in the rate environment in 2022 are
having considerable impacts on the mortgage market,” CFPB Director Rohit Chopra
said in a statement referring to the report. “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,” Chopra added.
Borrowers paid 22 percent more in costs and fees ($5,954) in
2022 compared with 2021, the report shows. About half of borrowers (50.2
percent) paid discount points in 2022 – more than in any other year since this data
began being collected in 2018, including 2021 when only 32.1 percent of
borrowers paid discount points. The median borrower paid $2,370 for discount
points in 2022.
The majority of refinancing activity in 2022 involved
cash-out refinances originated by independent lenders, marking a departure from
recent trends. Notably, the median credit score for refinance applicants has
fallen below that of prospective homebuyers, in contrast to the prevailing
pattern.
Approximately 8.3 million in refinances were recorded in
2021, indicating a 73.2 percent drop to 2.2 million in 2022. Cash-out
refinances can increase the risk of foreclosure as they typically come with
higher interest rates, higher monthly payments and larger balances than other
refinances. They also can result in unsecured debt becoming secured by the home,
such as credit card debt.
Consistent with years past, independent lenders have
maintained their stronghold in the home mortgage lending sector, with the
exception being home equity lines of credit (HELOCs), the report’s findings
indicate.
HELOCs represented the only type of refinancing activity to
see an increase year-over-year, according to the HMDA data. Depository
institutions accounted for the majority of the 1.27 million HELOCs issued in
2022, beating out the total recorded by independent lenders. Inversely to
cash-out refinances, HELOCs tend to have lower interest rates, lower monthly
payments, and fewer foreclosure risks than cash-out refinances.
The average monthly mortgage payment shot up by 46.1
percent, driven by soaring mortgage interest rates. The average monthly
payment for borrowers purchasing conventional conforming 30-year fixed-rate
mortgages (excluding taxes and insurance) increased from $1,400 in December
2021 to $2,045 in December 2022, according to the report. The median interest
rate for a 30-year fixed-rate mortgage was 6.5 percent at year’s end.
The HMDA data indicates black and Hispanic borrowers were
denied loans at higher rates, received smaller loans, were charged higher
interest rates and paid more in upfront fees than white and Asian borrowers.
For example, in 2022, the report notes the median interest rate for black and Hispanic
borrowers was higher than 5 percent but it was below 5 percent for white and
Asian borrowers.
Denials due to insufficient income were recorded at higher
rates than at any point since this data was first collected and reported in
2018, according to the report. This accounted for more than half of mortgage
denials for Asian applicants and same was true for approximately 45 percent of
denials for black and Hispanic applicants. Roughly 40 percent of denials for
white applicants were due to insufficient income. In 2018, such denials were below
40 percent for all four groups.
The CFPB noted this is the fifth year HMDA data has reflected
changes implemented by the 2015 HMDA collection rule, which implemented
statutory changes in the Consumer Financial Protection Act and made more home
mortgage lending information available to the public.