The number of mortgage originations dropped 31% to 6 million in 2014 due largely to a decline in refinancing as interest rates increased, according to a report issued Tuesday by the Federal Financial Institutions Examination Council.
In its Home Mortgage Disclosure Act report, the FFIEC said refinancings fell by more than half, or 2.8 million year-over-year. Regulators attributed the drop to climbing interest rates from the historic lows of 2013, though rates began to fall again later in 2014.
Residential mortgage originators, by contrast, rose 4% during 2014.
"In 2014, house prices continued their upward trend evident since 2012 and mortgage interest rates declined throughout the year, although rates remained slightly higher than the historical lows reached in late 2012 and early 2013," the report said.
Analysts had expected the mortgage market to drop in 2014 from a relatively robust 2013, and predicted that new mortgages would account for a greater proportion of new originations relative to refinancing because of the increase in interest rates. But those analysts have been heartened by early estimates that the drop would not be as drastic as some had feared, setting the stage for a more robust mortgage origination market in 2015.
The FFIEC also concluded that the Consumer Financial Protection Bureau's Qualified Mortgage and ability-to-repay rules, which took effect in January 2014, did not appear to have a chilling effect on the mortgage market.
The report said that examiners would expect that, if the new CFPB rules were preventing lenders from issuing loans, there would be a decline in loans made to minority borrowers, because they tend to have a higher debt-to-income ratio than white borrowers. Similarly, if the DTI cap on non-government-sponsored enterprise loans were preventing lenders from making loans, then jumbo loans — which are inherently excluded from GSE repurchase — would have declined. But the 2014 data showed that both categories of loans grew in 2014, suggesting the rules were not having the constraining effect that some critics had predicted.
"Black and Hispanic borrowers' share of home-purchase loans increased in 2014 after having declined for several years," the report said. "Jumbo home-purchase loans, which are not eligible for GSE purchase and would be subject to the DTI cap to qualify as QMs, grew much more rapidly than other home-purchase loans."