Today, the Consumer Financial Protection Bureau released its annual analysis of residential mortgage data, which generally covers mortgages originated in 2022 and reported by lenders under the Home Mortgage Disclosure Act.
There are a number of important findings from our analysis:
First, we find that average monthly payments increased nearly 46 percent and exceeded $2,000 per month. This is due almost entirely to the rate environment. This change was also accompanied by a substantial increase in income-based denials.
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.
Third, overall refinancing activity dropped 73 percent. Importantly, the data revealed that cash-out refinances comprise the majority of all refinancing activity. These loans allow a borrower to draw on their home equity. 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.
Fourth, we also found some noteworthy disparities in outcomes, with Black and Hispanic borrowers faring worse when it comes to approvals, loan sizes, and fees. However, some of these disparities shrank or even disappeared for FHA loans.
The significant changes in the rate environment in 2022 are having considerable impacts on the mortgage market. 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.
We see a growing need for borrowers to understand their options when it comes to tapping their home equity, as well as the factors they should consider when purchasing discount points. Finally, we will continue to work with federal and state law enforcement to ensure that mortgage market participants are adhering to appropriate consumer protection and fair lending laws.