Mortgage lending plummets across US - report

Sharp drops in activity

Mortgage lending plummets across US - report

Lending activity in the US has gone into reverse after only 2.71 million mortgages were secured for residential properties during the first three months of the year, according to a new report by real estate data provider, ATTOM.

The ‘2022 US Residential Property Mortgage Origination Report’ for Q1 shows there was an 18% drop in mortgage lending compared to the last quarter of 2021, representing the largest quarterly decrease since 2017.

It was also down 32% from the first quarter of 2021 and the biggest annual fall since 2014.

The decline resulted from double-digit downturns in purchase and refinance activity, even as home-equity lending rose, the report said.

Lenders issued $892.4 billion worth of mortgages in the first quarter of 2022 in total, which was down quarterly by 17% and annually by 27%.

The figures show they were the steepest quarterly and annual falls in the dollar volume of loans in five and eight years, respectively.

The ATTOM report attributed plummeting refinance deals as the major contributor to the downturn, as only 1.45 million residential loans “were rolled over into new mortgages” during the first quarter of 2022, down by 22% compared with the last quarter of 2021 and by 46% year over year.

The fall in the number of refinance mortgages decreased for the fourth straight quarter amid rising mortgage interest rates, which currently stand at 5.49% for 30-year fixed-rate mortgages.

The dollar volume of refinance loans was also down 20% from the previous quarter and 42% annually, to $470.7 billion.

Purchase-loan activity also shrank during Q1 as lenders issued just over one million mortgages to buyers - down 18% quarterly and 12% annually.

Meanwhile, the dollar value of loans taken out to buy residential properties dropped to $371.3 billion, down by 16% from the last quarter of 2021.

However, ATTOM noted that despite the reduction, purchase loans remained at 37% of all loans in the first quarter of this year.

Rick Sharga, the executive vice president of market intelligence at ATTOM, said the drop in Q1 refinance activity had been expected, given how fast mortgage rates had been rising, but he expressed surprise that purchase loans had also plummeted.

He said: “Many forecasts expected purchase loans to remain strong in 2022, and even increase in both the number of loans originated and the dollar volume of those loans. The weakness in purchase loan activity shows just how much of an impact the combination of escalating home prices and rising interest rates have had on borrower activity this year.”

One product that bucked the trend was home-equity lending, which increased by 6% in the first quarter of this year and by 28% annually to 249,900.

In addition, so-called HELOC mortgages represented 9% of all first-quarter residential loans, up from 7% in the fourth quarter of 2021 and 5% in the first quarter of last year.

The report, however, concluded that the “continued shrinkage in overall residential lending” during the first quarter “reinforced a stark reversal for the mortgage industry following a near-tripling of activity from early 2019 through early 2021”.

It cited “multiple forces” that would continue to impact on the housing market, including 30-year mortgage rates that have risen past 5%, the ongoing tight supply of homes for sale around the US “that limits the number of home purchases”, as well as rising inflation and “other uncertainties surrounding the US economy”.

The ATTOM report reflected the latest findings by the Mortgage Bankers Association (MBA), which show that mortgage applications have dropped for the last four weeks in a row.

The latest MBA weekly survey this week revealed that mortgage applications fell 6.5% from a week earlier.

Meanwhile, Moody’s economist Mark Zandi this week reaffirmed his view, in an interview on CNBC, that the housing market was going to weaken, saying “there’s a comeuppance coming”.

He said home sales and housing demand “are going to be hit hard”, citing the difficulty to obtain a mortgage for first time buyers as well as the reluctance among trade-up buyers to sell their home due to the fact they were unlikely to obtain a better interest rate than the one they were already on.

However, he dismissed fears of a housing crash like the one which sank the US economy in 2008, citing the “severe shortage of homes” while adding that current mortgage lending was “pristine”, thanks to 15- and 30-year loans and “excellent” underwriting that bore no resemblance to the two-year subprime and ninja-loan fiascos of 14 years ago.