In the August 2024 edition of At A Glance, the Housing Finance Policy Centers’ reference guide for mortgage and housing data, the prevailing 30-year FRM fell to its lowest rate since May 2023 and 1st lien origination volume saw the first positive year-over-year change since the second quarter of 2021. This month we feature an analysis of the recently released HMDA 2023 data, with new insights into application outcomes, purchase loan composition and denial rates.

Findings from the 2023 Home Mortgage Disclosure Act

This introduction documents some of the primary findings from the Housing Finance Policy Center’s analysis of the recently released 2023 Home Mortgage Disclosure Act data in the following areas: Application Outcomes, Purchase Application Shares, Composition of Purchase Originations and Denial Rates

Application Outcomes

High interest rates, constrained supply and sustained levels of historic unaffordability have reduced the number of people attempting to attain a mortgage. In 2023, there were 6.2 million loan applications, significantly lower than the 9.8 million applications in 2022 and one-third of the application volume seen in 2021. Only 59.6 percent of applications made in 2023 were originated, the lowest this share has been for the past 6 years.

 The share of applications that were denied or withdrawn by the applicant were higher in 2022 and 2023 compared to 2020 and 2021. The originated share of applications decreased by 0.3 percentage points from 2022 to 2023. A too high debt-to-Income (DTI) ratio has been the most common reason for denial for the past 5 years and exceeded 30 percent in 2023. Increasing DTI denial shares reflects elevated mortgage unaffordability since 2022 (page 23).

Purchase Application Shares

In 2023 73.9 percent of all mortgage applications were intended for purchasing a home. This purchase application share is significantly higher than it was from 2018-2022. Refinances, rate/term and cash-out, made up over half of applications in 2020 and 2021, however in 2023 only 15.9 percent of applications were to cash-out equity and 6.9were rate/term refinances.

High-income borrowers are the most apt to refinance when interest rates are low; when interest rates are high, their purchase share is high as they are less likely to need to do a cashout refinance. In 2020 high-income borrowers had the lowest purchase origination share at only 30.6 percent and in 2023 they had the highest purchase share at 79.8 percent. Borrowers with low-to-moderate incomes (LMI) generally have the lowest purchase application share, standing at 59.9 percent in 2023.

In some years differences in purchase shares by race and ethnicity were wider than differences by income. In 2020, the difference in the purchase application share between high- and low-to-moderate-income borrowers was 8.5 percentage points, smaller than the 10.8 percentage point gap in purchase application shares between white and Black mortgage applicants in the same year.

Composition of Purchase Originations

The high-income share of home purchasers using a mortgage continues to expand, rising from 44.2 percent in 2022 to 45.6 percent in 2023, but remains below its share of all homeowners, 50.0 percent. The low- to moderate-income (LMI) share of homebuyers has been declining and is less than its 5-year share of all homeowners. Historically, government loans have the highest composition of LMI borrowers.

However, in 2023 LMI borrowers made up less than one-third of government borrowers. After declining amid lower interest rates, the share of younger mortgage home purchases, those under 35, increased slightly from 31.9 percent in 2022 to 39.9 percent in 2023. It is important to realize this youngest cohort of mortgage home purchasers makes up a larger share of government loans than conventional ones. Higher interest rates likely discouraged repeat homebuying relative to first-time purchasers; existing homeowners with a low mortgage rate had a financial disincentive to move. This likely contributed to the increase in the share of those under 35, who are disproportionately first-time homebuyers.

Denial Rates

Overall denial rates were largely stable from the previous year, but this hides some interesting denial rate trends among different racial/ethnic groups and between loan types. Black and Latino applicants for purchase loans saw the largest overall denial rate increase from 2022 to 2023, by 0.5 and 0.6 percentage points, respectively. In contrast, purchase denial rates for other racial or ethnic groups were stable from 2022 to 2023 or had declined. While the denial rate among purchase loans was largely flat over the year, the rate among refinancings rose, with applicants of color experiencing a larger annual increase compared to white applicants. The denial rate on home improvement loans also rose from 2022 to 2023 and is now at its highest rate in five years.