Not surprisingly, higher mortgage rates depress mortgage applications – especially for refinancings

A “significant drop” last year in annual mortgage applications and originations– especially among refinancings – was prompted by higher mortgage interest rates, according to a report issued Friday by the federal consumer financial protection agency.

According to the Consumer Financial Protection Bureau (CFPB) loan applications and originations in 2023 dropped by about one-third from the previous year. The agency said the decline was “more prominent” in refinancing activity than home purchase. CFPB said single family refinance originations were down by nearly two-thirds in 2023 from 2022.

The agency report also contends that total median loan costs rose last year. The agency said a higher percentage of borrowers reported having paid discount points than any other year since tracking of the data began.

Other key points the agency highlighted in its report included:

• Average monthly payments are higher: The average monthly payment excluding taxes and insurance for borrowers taking out a conventional conforming 30-year fixed-rate mortgage rose from $2,045 in December 2022 to $2,295 in December 2023. The agency pointed to rising mortgage interest rates as the cause.
• The average debt-to-income ratio did not change: The agency asserted that “likely reflects lenders shifting toward higher-income and away from lower-income borrowers.”
• Total loan costs rose faster for Hispanic and Black borrowers: The median total loan costs were about $6,700 last year, with refinance costs of more than $7,300. CFPB said most Hispanic and Black borrowers “experienced faster increases in the median total loan costs for home purchase loans compared to Asian and non-Hispanic white borrowers.”
• Discount points are increasing: More than 56% of single-family loan originations paid some discount points in 2023, nearly a 13% increase from 2022, CFPB said.
• Lenders other than credit unions, banks continued to build share of originations: The bureau said independent mortgage companies and other non-depository institutions originated significantly more loans than banks and credit unions. In 2023, independent mortgage companies originated nearly 62% of all closed-end home purchase loans and more than 64% of refinance loans.

CFPB Report Finds Significant Drop in Annual Mortgage Applications and Originations in 2023