Home affordability declined in 2022 driven by higher rates, fees; more applicants denied for insufficient income

Overall affordability of homes declined significantly in 2022, with borrowers spending more of their income on mortgage payments and lenders more often denying applications for insufficient income, the federal consumer financial protection agency said Wednesday.

The Consumer Financial Protection Bureau (CFPB) indicated that higher mortgage rates, fees, discount points, and other costs contributed to the lower affordability. The agency also reported, in its 2022 Mortgage Market Activity and Trends that most refinancings last year were “cash-out” transactions, and that the median credit score of refinance borrowers declined below the median credit score of purchase borrowers.

CFPB said key points of its report included:

  • Costs and fees for a mortgage rose 22% from 2021 to $5,954, with a higher percentage of borrowers (50.2%) paying discount points in 2022 – a record. In 2021, the agency said, 32.1% paid the fees. The average borrower paid $2,370 for discount points in 2022.
  • 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.
  • Cash-out refinances dominated refinance originations, even though refinancings overall dropped (from 8.3 million in 2021 to 2.2 million in 2022).
  • Average monthly mortgage payments (for a 30-year fixed-rate mortgage) increased more than 46%, driven by the rise in mortgage interest rates. The median interest rate for a 30-year fixed-rate mortgage at the end of 2022 was 6.5%, the agency said.

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