Early Insights from the 2023 HMDA Data

Posted By Laird Nossuli on Apr 16, 2024
iEmergent Blog - 2023 HMDA Data Insights

What our early analysis says about current U.S. mortgage market

While teasing out everything the latest Home Mortgage Disclosure Act (HMDA) data can tell us about how lenders are serving the housing needs of their communities will take months, our high-level analysis can give lenders an early view of national trends. I recently presented my initial analysis and findings to members of The Mortgage Collaborative, highlighting several clear trends and insights lenders can leverage to optimize their mortgage strategies for the current market. Here are a few of the key takeaways:

Market at its Low Point

It will come as no surprise that the market is at a nadir in terms of both purchase and refi mortgage loan origination units and dollars. By looking at historical HMDA data, we can see that peaks and troughs are cyclical and expected. 

Though the valleys we are experiencing can be disheartening, lenders can take heart; it is unlikely that the number of loan originations will drop any further. We are at the low point of the mortgage cycle, and our opportunity forecast shows that both loan purchase dollars and the number of originations lenders execute are likely to begin increasing again by 2025.

2004-2023 mortgage originations
2004-2023 mortgage volume

Home-equity Loans Should Be Top of Mind

As first-lien mortgage originations have dropped, home-equity loans have taken center stage and claimed a much larger share of the market than they previously occupied. Under HMDA reporting rules, home-equity loans are categorized under the purpose “home improvement” as long as the homeowner explicitly intends to use the funds for home repairs or improvements. If the homeowner plans to use the funds for another purpose — buying unimproved land, starting a business, paying tuition, etc. — then the loan is categorized as purpose “other.” Both categories are picking up steam, with the “home improvement” purpose gaining 2% in overall market share in just one year and “other” loans gaining 3%. Banks are the leading provider of such loans, with credit unions hot on their heels. Independent mortgage bankers (IMBs) have originated only 1-2% of these loans.

HMDA originations by purpose

IMBs Dominating Purchase

They might be trailing on alternative loan types, but IMBs are still well in the lead on both purchase and refi loans. IMBs have gained ground in purchase loans by 2% over 2022, claiming 64% of originations. IMBs are also leading refi loans with a total market share of 47%. Credit unions also gained some ground in the refi space, owning 19% of originations compared to merely 14% in 2022.

HMDA mortgages by lender type

While some industry analysts expected to see fewer HMDA reporters due to widespread consolidation, the opposite is true. The number of HMDA reporters increased by 608, from 4385 in 2022 to 4993 in 2024. Most of this increase is in the number of banks reporting, with a small increase in credit unions and a small decrease in IMBs. 

Despite the increased number of banks in the market, only 6 banks are among the top 30 lenders in purchase loans. The only credit union to make the top 30 is Navy Federal Credit Union. IMBs claimed the remaining 23 spots, once again displaying their dominance in the mortgage market.

Fewer loans are making it to the finish line

Since 2018, there has been a significant increase in fall-out during the mortgage process, with overall fall-out jumping from 28.5% to 33.7% and fall-out among minority and low- to middle-income (LMI) borrowers at an all-time high. Black borrowers are experiencing the highest fallout rate at 43.3%, while LMI borrowers are a close second with a fall-out rate of 40.2%.

mortgage actions taken

Interestingly, the denial rates are staying flat; instead, growing withdrawal rates are leading to an increase in fall-out. The highest withdrawal rate is among Asian borrowers, closely followed by both Black and majority-minority census tract (MMCT) households.

mortgage applications hmda 2023

Notably, the highest cause of denial among minority, LMI, and MMCT households is their debt-to-income ratio (DTI).
denial reasons by borrower group

Where Lenders Can Grow

At a glance, there is a clear growth market nationally for forward-looking lenders. Units and purchase dollars have continued to increase among minority borrowers, particularly in Black and Hispanic households. Hispanic borrowers especially are presenting increasing opportunities for originators. From 2022 to 2023, the number of Hispanic loans increased by 1.3%, while purchase dollars in Hispanic markets increased by 1.6%.

purchase loans by borrower group
For a more detailed analysis of early HMDA data, watch the full presentation from The Mortgage Collaborative.

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