U.S. lenders issued a record $4.4 trillion in mortgage originations in 2021, topping the previous mark of $4.3 trillion set a year earlier, according to a new report.
The Data & Analytics division of Black Knight Inc. today released its latest Mortgage Monitor Report, based on the company's mortgage, real estate, and public records datasets.
In addition to the record originations, Black Knight also found a distinct shift to an equity-driven refinance market, it said.
According to Black Knight Data & Analytics President Ben Graboske, while American homeowners are tapping home equity via cash-out refinances at the highest level since 2005, they are doing so judiciously, at roughly half the rate seen back then.
"Entering 2021, consensus opinion was that originations would likely come in 20% to 25% lower than 2020's record-breaking levels," Graboske said. "Our own forecast suggested a slighter decline, on the order of -7%. In the end, total originations came in at $4.4 trillion, actually outpacing the prior record.
“At $1.7 trillion for the year, purchase lending also hit the highest point ever recorded, while the $2.7 trillion in refinance lending was a bit below 2020 levels,” he continued. “What stands out is the 20% growth in cash-outs over 2021, which accounted for $1.2 trillion in originations last year and $275 billion in equity withdrawn. In the fourth quarter alone, homeowners tapped $80 billion — the most in 15 years — while marking the fifth consecutive quarter of more than 1 million borrowers pulling cash out.”
Graboske added that, despite that sizable withdrawal, “surging home values meant overall tappable equity still grew by nearly $450 billion in the quarter.”
He also noted that rising home values “resulted in much lower post-cash-out loan-to-values (LTVs) than we've seen in recent years — and more than 10 points lower than during the previous peak — while high average credit scores are also helping to lower the overall risk profile of these loans.”
Graboske said the shift to an “equity-centric market” has been discussed by Black Knight for some time, and its “Optimal Blue rate-lock data showed that cash-out activity continued to increase in January of this year as well.”
“Now for the bad news,” he said. “Retention of cash-out refinance borrowers has been notoriously difficult. Even in a quarter that saw overall retention rates hit an eight-year high, cash-out retention was still 8 percentage points lower than for rate/term refis. Servicers continue to struggle with this segment, despite strong improvement."
In fact, the report found that borrowers who changed lenders received interest rates just 5 basis points lower, on average, than those who were retained by their current lender/servicer — the smallest savings in 2.5 years.
“This suggests pricing, while certainly important, is not the only factor necessary to retain a current customer, particularly if they are looking to take equity out of their home,” Graboske said. “Lenders and servicers that create a positive customer experience see greater loyalty and retention.”
Black Knight said its retention metrics also highlight the need for data-driven marketing strategies and portfolio analysis, especially with rate/term refinance incentive cut by 65% year-to-date and lenders competing for a shrinking pool of high-quality candidates.
“In a market dominated by equity-centric lending, it becomes paramount for lenders/servicers to be able to accurately identify borrowers who meet certain defined criteria and are most likely to tap into the record levels of equity, and then create targeted marketing campaigns personalized for those specific borrowers,” the company said in a statement.
The Data & Analytics division of Black Knight manages a repository of loan-level residential mortgage data and performance information covering the majority of the overall market, including tens of millions of loans across the spectrum of credit products and more than 160 million historical records. The combined insight of the Black Knight HPI and Collateral Analytics' home price and real estate data covers 95% of U.S. residential properties.
In addition, it maintains public property records databases that cover 99.9% of the U.S. population and households from more than 3,100 counties.
