Mortgage originations fall to a new low in 2023: TransUnion

Plunging originations helped bring the sum total of U.S. mortgage balances down on a quarterly basis for the first time since 2015, but consumers are still seeking access to home equity, TransUnion said.

The sum total of balances fell to $11.7 trillion in the second quarter after hitting a record high of $11.8 trillion three months earlier, the first such drop in eight years, according to a new report from researchers at the credit-reporting agency. Second-quarter numbers still came in 4.3% higher than levels of a year ago, though.

The shrinking overall balance was driven in part by a prolonged slowdown in lending activity, according to Joe Mellman, senior vice president and mortgage business leader at TransUnion.

"Mortgage rates — higher than those in recent history — continue to lend pause to potential borrowers, resulting in historically low mortgage originations," he said in a press release.

In the first quarter, new loan originations fell to a record low of 899,000, which reflected a 59% year-over-year decline from 2.2 million — the second largest drop on record. The average amount increased from one year earlier by 1.1% to $326,214, a sign of further deceleration from 3.6% growth in the fourth quarter and 8.9% annually. Mortgage origination numbers are presented with a one-quarter lag to account for any late data reporting. 

The unexpectedly swift rise in interest rates, which sat near 3% at the end of 2021 and now hover in the range of 7%, caught much of the mortgage industry by surprise and resulted in scores of layoffs and a wave of mergers over the past year. TransUnion's latest originations numbers largely correspond to regular weekly reports from the Mortgage Bankers Association showing languishing volumes of new applications.

More recent macroeconomic pressure continues to further hinder potential improvement in the numbers, with average interest rates currently close to their highest marks since the end of last year dampening borrower enthusiasm.

The impact of rising rates are most apparent in the refinance market. "Given that the large majority of existing mortgages have rates below 6%, there is no incentive for homeowners to refinance their existing lower-than-current-rates mortgage and enter into a new, costlier mortgage," Mellman said. 

Refinance originations decreased annually by 86% in the first quarter to a new record low of 121,000, from 870,000, with both cash-out and rate-and-term options down by 83% and 93%, respectively. 

But among those who have refinanced, 81% chose a cash-out transaction, "indicating that consumers remain interested in tapping into the equity in their homes," Mellman said.

Instead of refinancing at current rate levels, consumers are now more likely to consider home equity lines of credit or other types of loans for access to their properties' values. 

"Home equity products continue to remain viable options for consumers looking to utilize their tappable equity to pay down higher interest debt, with consumer interest in HELOANs in particular, on the rise this year," Mellman said. 

While the volume of HELOCs decreased 14% annually to nearly 252,000 in the first quarter this year, growth in HELOAN product originations grew approximately 18% to 240,000 almost double the total volume of refinances during the same period.

Purchase loans, meanwhile, made up 87% of activity in the first quarter, with 780,000 originations, reflecting a 40% decrease from the prior year. 

Elsewhere in its credit industry insights report, TransUnion found that lenders are becoming more cautious in choosing their customers when originating new loan products. Issuers are increasingly focusing on credit tiers carrying less risk, with subprime auto lending decreasing in the first quarter by 11.6% annually and 21.3% compared to pre-pandemic 2019. Meanwhile, originations of unsecured personal loans to subprime borrowers fell 26.1% from the first quarter of 2022.