Homebuyers faced surging mortgage costs, fees and monthly payments in 2022 amid a tightening monetary policy designed to combat persistent inflation. And because their income didn’t keep up, lenders’ denials for a home loan jumped last year, according to a Consumer Financial Protection Bureau (CFPB) report released Wednesday.
Unfortunately, there’s been no sign of relief in 2023. “The higher interest rate environment had profound effects on the mortgage market in 2022, with borrowers paying much more in monthly payments,” CFPB Director Rohit Chopra said in a statement. “These trends are likely to continue given further increases in interest rates in 2023.”
To illustrate, the median interest rate for a 30-year fixed-rate mortgage at the end of 2022 was 6.5%, per the CFPB report. At HousingWire’s Mortgage Rates Center, Optimal Blue data showed the same rate almost 100 basis points higher on Tuesday, at 7.38%. At Mortgage News Daily, it was at 7.50%.
The CFPB report shows that the median total loan costs for home purchases was $5,952 in 2022, up 21.8% from 2021. This represents the largest annual increase since 2018 when the information based on the Home Mortgage Disclosure Act (HMDA) data was first collected. Refinancing costs were $4,979 on average last year, up 49.3% from 2021.
Amid increasing rates, the average monthly payment for a conventional, conforming 30-year fixed-rate mortgage rose to $2,045 in December 2022, compared to $1,400 in December 2021, or a 46.1% increase in one year, per the CFPB report. The data excludes taxes and insurance.
Higher costs and rates meant customers taking out mortgages in 2022 devoted a higher share of their income towards paying home loans. The average debt-to-income ratio for Hispanic White and Black borrowers reached over 40% in 2022, about 39% among Asian applicants and 37% for non-Hispanic whites. In 2021, the ratios were below 38% for all groups.
The overall denial rate for home purchase applications for all applicants was 9.1% in 2022, up from 8.3% in 2021. For refis, it was 24.7% last year, up from 14.2% in 2021. Compared to 2021, the debt-to-income ratio has become more likely to be reported as a denial reason: over 50% for Asians, around 45% for Blacks and Hispanic Whites and 39% for White applicants.
To deal with surging costs, 50.2% of borrowers paid discount points in 2022, with an average payment of $2,370.
According to the CFPB, racial disparities remained in place in 2022. “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,” the Bureau stated.
Mortgage activity
The data show that total mortgage applications declined by about 9 million and originations fell by 6.6 million in 2022. Lenders reported approximately 6.7 million closed-end site-built single-family originations in 2022, down from 13.7 million in 2021. Refis fell to 2.2 million in 2022 from 8.3 million in 2021.
Most of the refis were cash-out refis, which the CFPB states can “increase the risk of foreclosure as they typically have higher interest rates, higher monthly payments, and higher balances.”
According to the report, some borrowers decided to use home-equity lines of credit instead of cash-out refis. HELOC originations rose to approximately 1.4 million in 2022 from 962,000 in 2021, a 41.2% increase. The CFPB states home equity lines of credit tend to have lower interest rates, monthly payments, and foreclosure risks than cash-out refinances.
Banks collectively originated 28.7% of all reported closed-end originations in 2022, and credit unions were responsible for 10.4%. Meanwhile, independent mortgage companies originated 57.2% of all reported loans, a decline from 63.3% in 2021. It implies that during the downturn in 2022, the mortgage origination volume of independent mortgage companies shrank even more than any other group.
