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On September 27, the CFPB released its annual report on residential mortgage lending activity and trends for 2022. Under the Home Mortgage Disclosure Act (HMDA), the CFPB requires financial institutions to collect and provide loan-level information on mortgage loan applications and originations. Not surprisingly given the dramatic rise in interest rates last year, the report found that overall affordability is declining, that borrowers spent more of their income on mortgage payments, that loan fees increased dramatically due primarily to many borrowers electing to buy down their interest rate by paying discount points, and that lenders more often denied applications for insufficient income.

Among other things, specific key findings included that:

  • The total number of applications and originations dropped significantly in 2022, with applications decreasing by 38.6 percent and originations decreasing by 44.1 percent.
  • Lenders reported approximately 6.7 million closed-end single-family originations in 2022, a 50.9 percent decrease from 13.7 million originations in 2021. The significant decline occurred in both home purchase and refinance activities but was more prominent in refinance. The refinance closed-end single-family originations fell from 8.3 million in 2021 to 2.2 million in 2022, a reduction of 73.2 percent.
  • Most of the refinance originations left in the market were a small number of cash-out refinance loans. Meanwhile, the total number of HELOC originations among reporters in both 2021 and 2022 increased by 33.3 percent over that time period. This is most likely due to some consumers using HELOCs instead of cash-out refinance loans in a high interest rate environment.
  • Compared to 2021, DTI became more likely to be reported as a denial reason for denied applications across racial/ethnic groups in 2022.

Putting It Into Practice: There is nothing surprising here, since historically higher interest rates will result in a drop in loan originations, particularly a drop in refinancings, an increase in loan fees, an increase in the amount of the borrower’s income required to make loan payments, and an increase in declinations based on the applicants having too high of a debt to income ratio. Given that further increases in mortgage rates have occurred in 2023, we can expect these trends to continue this year until rates start to decline.