CFPB says continued boom in mortgage refinancings last year drove rise in closed-end originations

Last year brought a continuation of the refinancing boom seen beginning in the second quarter of 2019, the Consumer Financial Protection Bureau (CFPB) said Thursday, and that boom drove some 90% of the increase in closed-end, site-built, single-family originations in 2020.

The CFPB, in a Data Point report on 2020 mortgage market activity and trends, noted a substantial increase in the total number of closed-end originations as well as applications between 2019 and 2020. It said that closed-end originations – excluding reverse mortgages – increased in 2020 by 65.2%, from 8.3 million in 2019 to 13.6 million in 2020.

The bureau said refinance originations increased about 5 million, or 149%, to 8.4 million in 2020, up from 3.4 million in 2019. Refinance applications for site-built single-family properties also increased from 5.8 million in 2019 to 13.2 million – an increase of 7.4 million – in 2020. It also said that less than half, or 41.1%, of refinance loans were cash-out refinances; by contrast, 56.3% of all refinance loans were cash-out refinances in 2018.

The CFPB also noted that while the number of financial institutions reporting 2020 HMDA data declined compared to 2019, the number of closed-end records in 2020 increased compared to the previous year.

Year over year, the bureau reported, significant differences between demographic groups persisted, including higher interest rates and denials among Black and Hispanic consumers in the mortgage market.

“Initial observations about the nation’s mortgage market in 2020 are welcome news, with improvements in the overall volume of home-purchase and refinance loans compared to 2019,” CFPB Acting Director Dave Uejio said in a statement with Thursday’s release. “Unfortunately, Black and Hispanic borrowers continued to have fewer loans, be more likely to be denied than non-Hispanic White and Asian borrowers, and pay higher median interest rates and total loan costs. It is clear from that data that our economic recovery from the COVID-19 pandemic won’t be robust if it remains uneven for mortgage borrowers of color.”

Among other report findings are:

  • 4,472 financial institutions reported at least one closed-end record in 2020, down 18.8% from 5,505 financial institutions that reported in 2019.
  • The number of open-end lines of credit originations excluding reverse mortgages (HELOCs) in 2020 decreased by 16.6%, from 1.04 million in 2019 to 869,000 in 2020.
  • The share of loans secured by closed-end home-purchase loans for site-built, one-to-four-family, first lien, principal-residence properties for Black borrowers increased in 2020 and the share of refinance loans for Asian borrowers increased in 2020.
  • Black and Hispanic white borrowers had lower median loan amounts, lower median credit scores, higher denial rates, and paid higher median interest rates and total loan costs compared to non-Hispanic white and Asian borrowers.
  • In April and May of 2020, contrary to typical seasonal patterns, the home-purchase origination volume declined, likely reflecting the effects of the pandemic and nationwide shutdown. Starting in June of 2020, the home-purchase volume recovered and increased significantly in terms of year-over-year comparison despite the typical low home sale seasons near the end of the year.
The data point report covers activity from 2018 to 2020, with 2018 being the first year that changes in HMDA data collection and reporting were implemented by CFPB rule under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).

Mortgage refinance loans drove an increase in closed-end originations in 2020, new CFPB report finds

Data Point: 2020 Mortgage Market Activity and Trends