House as ATM

Initial Analysis Of 2021 HMDA Data: The Year That Homes Became ATMs Again

Mortgage lending in 2021 saw a continuation of several long term trends, including more Black, Indigenous and People of Color (BIPOC) borrowers and very high levels of refinance lending. The major difference in 2021 was that borrowers shifted to loans which allow them to access the equity in their homes, new national mortgage market data suggests.

Cash-out refinances, home equity and home improvement loans saw large increases in 2021 as lower rates lured homeowners to tap into their wealth. These loans can be used to pay off other debt, start a business, or finance education. Many reports note the rise of small time real estate investors as homeowners use their equity to buy additional properties for rent.  Much of the investor activity in the mortgage market is driven by large firms and Wall Street actors who are buying up housing stock. But smaller “mom and pop” actors – who generally operate on a tighter budget and may be less experienced – also used lower 2021 interest rates to wade into similar speculation at smaller scale.

This tentative assessment reflects only a first-blush analysis of that data, which covers 15 million mortgage originations in 2021. We will produce more detailed number-crunching and analysis in the coming weeks – but our initial review hints at some intriguing insights.

The Consumer Financial Protection Bureau (CFPB) released the 2021 Home Mortgage Disclosure Act (HMDA) data on June 17, 2022, capturing mortgage lending information from nearly all lenders in the United States. HMDA offers details on 15 million originations resulting from over 26 million Loan Application Records (LAR) contained in the dataset. HMDA is a crucial tool for the public and local leaders to monitor the mortgage market and ensure lenders are not redlining in their communities. NCRC also helps our members and partner organizations use this data via our Fair Lending Reports and custom research support. In 2021 NCRC produced a detailed report on 2018 through 2020 mortgage lending which found that the mortgage market continued to underserve most households of color and that the market share of BIPOC borrowers had shrunk since 2019.

HMDA data provides an opportunity to assess how well lenders enabled or hindered housing outcomes, and therefore the ability to accumulate personal wealth, for BIPOC communities. The 2021 data reflects lending during a period of truly historically low interest rates, with enormous political and social upheaval underway across the world. Low interest rates offer an opportunity for homeowners to dramatically increase their wealth but they also drive higher home prices. Coupled with shortages in both labor and materials due to the COVID-19 pandemic, many renters found themselves priced out of the housing market. This has enormous implications for the ability of those renters to become homeowners and build wealth for themselves and future generations. It also may erode the wealth of existing homeowners over the long term, as renters fail to make the transition to homeownership.

In 2021 there were a total of 13,325,530 mortgage originations on single family homes reported under HMDA. The CFPB estimates that 88% of all mortgages are in HMDA.  This number of originations is a slight increase from the 13.1 million loans made in 2020.

The real story based on our initial review of the data is the shift in the kind of loans that borrowers are seeking. The average interest rate on originations in 2021 fell from 3.2% in 2020 to just 2.99% in 2021. This trend has resulted in an explosion in the number of refinance loans since 2018 but in 2021 that changed. Rather than seeking refinance loans borrowers shifted to cash out refinances, home equity and home improvement loans. This trend corresponds with an uptick in investor purchases across many communities.

While some of those buyers are backed by Wall Street, many more are “mom and pop” investors, homeowners using the equity in their primary home to buy additional properties as investments. Home purchase loan originations increased from 4.2 million in 2020 to 4.5 million in 2021, but the number of refinance loans fell sharply from 6.1 million to 5.1 million loans. Instead, borrowers flocked to equity extracting loans.

These categories of borrowing represent inherently riskier investment behavior. And this up-risking behavioral shift is enormous in scope: The number of these originations skyrocketed from 2.8 million in 2020 to over 3.6 million in 2021. As interest rates continue to increase and many sources are predicting a cooling off in prices or even a correction in some markets, this may be a concern. While refinancing your home has almost certainly positive effects on the equity you build, extracting equity can overextend borrowers if their home value falls or fails to keep pace with inflation.

Demographically we continue to see a slow downward trend in the number of White non-Hispanic applicants, falling slightly this year from 64.9% of all borrowers to 61.7%. In 2021 Black borrowers were 6.2% of all originations, up from 5.2% in 2020. Hispanic borrowers also increased, from 9.2% in 2020 to 10.2% in 2021.  Although both of these are positive changes, they still fall far short of their respective shares of the population. Asian borrowers saw a slight increase in activity at 6.6% of the origination market, primarily concentrated among Asian Indian and Chinese homebuyers.

While these shifts in market share from White to non-White borrowers signal progress, the news is not all good. We continue to observe an alarming increase in loan records lacking any demographic data. In 2020 almost 14% of originations lacked race and/or income data. Purchased loans, where banks buy loans from smaller lenders and report those loans under HMDA, lacked this data 75% of the time. In 2021 these figures rose to 15% and 80%, respectively.

Loans to low- or moderate-income (LMI) borrowers and in LMI neighborhoods also saw a modest recovery from 2020, increasing to 25.4% and 15.3% of all originations, respectively. Further analysis of these loans, including who is buying in LMI communities and how much of that is really investor activity, will be included in future publications from NCRC.

NCRC will continue to review and analyze this new data. Please sign up for our newsletter to get updates as they appear. In the coming weeks we will produce a new blog with more detail on the trends discussed here. An update to our 2020 HMDA report will be available within a few weeks and our Fair Lending Tool will soon be updated with the newest data.

Jason Richardson is the Senior Director of Research for NCRC.

Illustration: ©Corund / Adobe Stock

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