The Consumer Financial Protection Bureau's annual report on the state of the residential mortgage industry in 2022 painted a concerning picture of the market with originations decreasing by 6.6 million or 44.1%. Amid increased rates and higher fees, originations were down and overall affordability took a hit, with borrowers shouldering more of their income on mortgage payments and facing higher rates of application denial due to insufficient income.
For 2022, lenders reported approximately 6.7 million closed-end, site-built single-family originations, a 50.9% decrease from 13.7 million in 2021. 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%. Meanwhile, the total number of HELOC originations among reporters in both 2021 and 2022 increased by 33.3% over that time period.
The 71-page report also found that, excluding taxes and insurance, monthly mortgage payments increased 46.1% and exceeded $2,000 per month.
"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," according to the report.
"This is due almost entirely to the rate environment. This change was also accompanied by a substantial increase in income-based denials," CFPB Director Rohit Chopra said.
"Second, we found a very large increase in the amount of costs and fees paid by borrowers when taking out a mortgage. We suspect that this is, in part, due to the increase in fees related to discount points, where borrowers purchase a lower interest rate at the time of closing," he added.
The data also showed that a majority of refinances were cash-out refinances.
"It is possible that homeowners are finding it difficult to move and are using the proceeds from cash-out refinances for renovations and repairs. However, some may be using these products to pay for higher education or other expenses unrelated to housing. Relatedly, we found an increase in home equity lines of credit," Chopra said.
The report also found some noteworthy disparities in outcomes, with Black and Hispanic borrowers faring worse regarding approvals, loan sizes, and fees. However, Chopra said, some of these disparities shrank or even disappeared for FHA loans.
Key revelations from the report include:
- A striking 22% increase in borrower costs and fees compared to 2021.
- Cash-out refinances dominated 2022's refinance originations, indicating potential foreclosure risks.
- An uptick in home-equity lines of credit, mainly provided by depository institutions.
- A significant 46.1% jump in average monthly mortgage payments.
- Disparities in loan denials and higher interest rates for Black and Hispanic borrowers.
- The data also showed that insufficient income became a prevalent reason for loan denials, especially among Asian, Black, and Hispanic applicants.
Chopra said he expects the trends to continue for 2023 and is looking to devote more attention to the matter, including exploring amendments to mortgage servicing standards.
The agency is also looking for ways to simplify the refinancing process.