CFPB Mortgage Report Finds Jumps in Closing Costs and Denials for Insufficient Income, Growing Proportion of Cash-Out Refinances

Overall mortgage lending falls amid significant rise in interest rates and discount points

Today, the Consumer Financial Protection Bureau (CFPB) released its annual report on residential mortgage lending activity and trends. In 2022, mortgage applications and originations declined markedly from the prior year, while rates, fees, discount points, and other costs increased. Overall affordability declined significantly, with borrowers spending more of their income on mortgage payments and lenders more often denying applications for insufficient income. Most refinances during the reported period were cash-out refinances, and, in a reversal of recent trends, the median credit score of refinance borrowers declined below the median credit score of purchase borrowers. As in years past, independent lenders continued to dominate home mortgage lending, with the exception of home equity lines of credit.

"The higher interest rate environment had profound effects on the mortgage market in 2022, with borrowers paying much more in monthly payments,” said CFPB Director Rohit Chopra. “These trends are likely to continue given further increases in interest rates in 2023.”

Key findings from this year’s analysis include:

Borrowers paid much more in costs and fees: When taking out a mortgage, borrowers often pay certain costs and fees. These costs rose 22% from 2021 to $5,954. A higher percentage of borrowers (50.2%) paid discount points in 2022 than in any other year since data collection in this area began, including than in 2021 (32.1%). The average borrower paid $2,370 for discount points in 2022.

Cash-out refinances comprised majority of refinance originations: In 2021, the number of refinances was 8.3 million. Today’s report shows that number dropped to 2.2 million in 2022, a 73.2% reduction. Most of the refinances were cash-out refinance loans originated by independent lenders. Cash-out refinances can increase the risk of foreclosure as they typically have higher interest rates, higher monthly payments, and higher balances than other refinances, and can result in unsecured debt, such as credit card debt, becoming secured by the home.

Home-equity lines of credit rose: Though they did not comprise the majority of refinances, home-equity lines of credit were the only form of refinancing to see a rise from 2021. While independent lenders dominate the cash-out refinancing market, depository institutions offered the majority of the 1.27 million home-equity lines of credit in 2022. Home-equity lines of credit tend to have lower interest rates, monthly payments, and foreclosure risks than cash-out refinances.

Average monthly mortgage payments increased more than 46%: Driven by the rise in mortgage interest rates, the average monthly payment for borrowers taking out a conventional conforming 30-year fixed-rate mortgage (excluding taxes and insurance) rose from $1,400 in December 2021 to $2,045 in December 2022 – a 46.1% increase. The median interest rate for a 30-year fixed-rate mortgage at the end of 2022 was 6.5%.

Overall, Hispanic and Black borrowers experienced worse outcomes: 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. For example, in 2022, the median interest rate for Black and Hispanic borrowers was above 5%, while the median rate was below 5% for white and Asian borrowers.

Lenders increasingly denied applicants for insufficient income: Lenders denied loan applications due to insufficient income at higher rates than at any point since that data was first collected and reported in 2018. More than 50% of mortgage denials for Asian applicants were due to insufficient income. The same was true for around 45% of denials for Black and Hispanic applicants, and around 40% of denials for white applicants. Denials due to insufficient income were below 40% for all four groups in 2018.

Since 1975, the Home Mortgage Disclosure Act has required financial institutions to collect and make public certain loan-level information on mortgage applications and originations. In 2011, Congress transferred responsibilities for implementing the Act from the Federal Reserve Board of Governors to the CFPB.  Since then, the CFPB has worked to improve public access to the data, including through an annual report analyzing the information received.   

This is the fifth year that the data reflect changes implemented by the 2015 HMDA rule, which implemented statutory changes in the Consumer Financial Protection Act and provided greater information to the public about home mortgage lending.    

More information about the Home Mortgage Disclosure Act and its data can be found here.