Overall Mortgage Lending Down, Though HELOCs See Boost

Overall residential lending activity dropped 32% YOY, the fastest decline in eight years, according to ATTOM’s Q1 U.S. Residential Property Mortgage Origination Report.

The report found that 2.71 million mortgages secured by residential property were originated in Q1 2022. This is a drop from Q4 and the fourth consecutive quarter of declines. Refinances were down 22% and purchase mortgages fell 18% quarter-over-quarter.

Lenders originated $892.4 billion in loans in Q1, down 17% from Q4 and 27% YOY. The quarterly dip in dollar volume was the largest in five years, and the annual dip was the largest in eight years.

Declining refis drove the declines, with only 1.45 million residential loans refinanced during Q1 2022, down 22% from Q4 and a whopping 46% YOY. Refis accounted for only 53% of mortgages in Q1.

The dollar volume of refis was down 20% from last quarter and 42% YOY, to $470.7 billion.

“The drop-off in Q1 refinancing activity is no surprise with mortgage rates rising as rapidly as they have,” said Rick Sharga, executive vice president of market intelligence at ATTOM. 

“But 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.”

Purchase loan activity plummeted by 18% from Q4 2021 and 12% YOY. The dollar value of purchase loans taken out fell to $371.3 billion, down 16% from Q4 2021 and 1% YOY.

Home equity lines of credit got a boost, however, with equity lending up 6% quarterly and 28% YOY. They accounted for 9% of all Q1 residential loans.

“With affordability apparently slowing down demand from move-up homebuyers, we’re likely to see a continuing increase in HELOCs and cash-out refinance loans, as those homeowners tap into the record $27 trillion of equity to make improvements in their current properties,” Sharga said.

Homes have gained 9% in value since the first of the year, with equity reaching another all-time high at $2.8 trillion. That works out to $207,000 in equity per borrower.

Homeowners have been shown to tap their equity to build even more wealth by sending their children to college, starting businesses, or investing further in housing. While using equity isn’t risk-free, it can have serious real-world impact on individual and family wealth, experts say.