Mortgage originations dropped dramatically in 4Q

Mortgage lending activity in the fourth quarter, both on a per-unit and dollar volume basis, declined by the largest amount in three years, an Attom Data Solutions report said.

Lenders originated 3.27 million mortgage loans — including purchase, refinance and home equity lines of credit — in the fourth quarter, at a total dollar volume of $1.06 trillion. It was the third consecutive period of declining activity following a peak reached in the first quarter of 2021.

In the third quarter of 2021, 3.66 million units were originated for $1.17 trillion, so the fourth quarter’s numbers represented a drop of 10.7% and 9% respectively.

On a year-over-year basis, the decline was 13.5% from 3.78 million units originated with a dollar volume of $1.14 trillion, down 6.5%. The falloff in dollar volume for quarter-to-quarter and year-over-year was the largest since early 2019, Attom said. The quarterly decrease in units was the largest since the first quarter of 2019, while it was the most since the fourth quarter of 2018 on an annual basis.

“The receding volume of business for the residential mortgage industry is now showing up across all major categories of loans and appears to be more than just a temporary slide,” Todd Teta, Attom’s chief product officer, said in a press release. “The ebbing wave of refinance loans that started in early 2021 has fully spread to home-purchase and home-equity lending.”

The dollar volume drop-off was not as steep due to rising home values, which translated to higher initial balances. Those high prices are attributed to the inventory shortage.

Total lending activity remains higher than the norm for the past decade. “And the drop-off in purchase loans seems to flow from a lack of housing supply rather than the housing market boom ending,” Teta said. “But declining business for lenders remains a key point to watch in assessing the state of the market, especially with interest rates likely to climb this year.”

The biggest decline was in refinance activity, where the 1.8 million units produced was down 10.8% from 2 million for the third quarter and 22.7% from the 2.35 million units originated in the fourth quarter 2020.

Refinancings produced $578 billion in dollar volume, compared to $635.4 billion in the third quarter, down by 9% and $700.7 billion in the fourth quarter of 2020, down 17.5%.

But it’s a different story with purchase originations. Normal seasonal patterns include a decline on a quarter-to-quarter basis and the story was no different in 2021. The 1.22 million units originated in the fourth quarter marked a decline of 11.3% from the third quarter’s 1.38 million. On a dollar basis, there were $439 billion in loans originated, down 10% from $487.5 billion in the third quarter.

But compared with the fourth quarter of 2020, purchase activity increased, from 1.19 million units (up 2.8%) and $386.4 billion (a huge 14.1% rise).

Those higher loan amounts translated to buyers having to take more money out of their pockets to acquire a property. The median down payment on homes purchased using financing during the fourth quarter was $26,000, down 1% from $26,250 in the third quarter but up 18.8% from $21,891 in the fourth quarter of 2020.

Also, the median loan amount in the fourth quarter was $293,400, up 1.3% quarter-to-quarter and up 10.5% from the same period in 2020.

HELOC volume fell for the first time since the opening quarter of 2021.

A total of 230,734 HELOCs were originated in the fourth quarter, down 5.5% from 244,136 during the prior quarter and down 4.2% from 240,857 in the fourth quarter of 2020.

By dollar amount, the $45.6 billion in HELOCs produced was down 3% from the third quarter’s $47 billion and 11% from the fourth quarter of 2020’s $51.3 billion.