Mortgage originations increased 64.4% in 2020, largely driven by a refinancing boom as mortgage rates fell below 3%.
In 2020, mortgage lenders issued $4.375 trillion in total mortgages, up 64.4% from 2019, according to recently released Home Mortgage Disclosure Act data. The number of refinancing loans for one- to four-family properties increased by 150.0%, while the number of home purchase loans increased by 6.7%, according to a press release. The leap came despite a decrease in the number of reporting institutions as fewer small originators had to report HMDA data. A regulatory change increased the threshold for HMDA reporting to lenders that originated at least 100 loans, up from 25 loans, driving an 18.8% year-over-year decline in the number of reporting institutions.
"A combination of low interest rates and the interest in getting out of cities pushed home sales way up, as well as prompted people to refinance their mortgages," said Guy Cecala, president and CEO of Inside Mortgage Finance, in an interview. "There were a lot of things that got curtailed during the pandemic, but home buying and getting mortgages wasn't one of them."
Nonbank lenders continued to take market share in 2020, with banks and a thrift representing only seven of the top 20 lenders in 2020. Wells Fargo Bank NA dropped to the third spot, behind nonbanks Quicken Loans LLC and UWM Holdings Corp. Wells Fargo's year-over-year increase in origination volume of 10.1% was overshadowed by Quicken's 121.3% jump and UWM Holdings' 69.4% year-over-year increase.
Michael Fratantoni, chief economist at the Mortgage Bankers Association, said the continued market share gains by nonbanks represented a "cycle that perpetuates itself." As nonbank lenders issue more mortgages, they create networks with real estate agents, builders and others in the industry that catalyze even more business. Further, when it comes time to refinance, borrowers often first go to their existing lender, Fratantoni said in an interview.
Bank of America NA lagged the industry as its mortgage volume actually declined in 2020, dropping 8.9% from the prior year. Management attributed the slippage, in part, to elevated prepayments as low mortgage rates contributed to the refi boom, executives said on the bank's first-quarter 2021 earnings call. In upcoming quarters, management said mortgage lending should pick up as rates increase and prepayments abate.
"Mortgage production will continue to kick back up, and prepayments will slow down at a slightly higher rate environment, you'll see that bodes well there," said Chairman, CEO and President Brian Moynihan on the call.
U.S. Bank NA grew its mortgages by 41.9%, which the bank, during a recent investor conference, partially attributed to its digital capabilities. "Today, 80-plus percent of [refinancing] applications through the retail channel come in online and through that digital capability," said CFO Terrance Dolan.
Looking forward, Cecala said the robust level of origination activity may not last as the inventory of new homes could drop and rates are unlikely to fall further. Cecala said some lenders could reduce underwriting standards to increase activity, but most have avoided nonprime mortgages since the Great Recession.
For now, persistently strong demand and tight inventory have led to red-hot home prices in 2021. The latest S&P CoreLogic Case-Shiller report showed a 14.6% year-over-year leap in home prices across the nation in April.
Mortgage lending could also get a boost from a recent Supreme Court decision that led to a new head at the Federal Housing Finance Agency, acting Director Sandra Thompson. The change likely reduces the risk that Fannie Mae and Freddie Mac will be privatized and could lower the fees the agencies charge, cutting pricing on mortgages, wrote Isaac Boltansky, director of policy research at Compass Point LLC, in a note on the appointment.
"With affordability as the guiding light for the Biden administration, we believe it is fair to assume that there will be a pronounced focus on expanding the mortgage credit box," Boltansky wrote.
Boltansky also noted that previous footprint reduction policies — such as a cap on high-risk mortgages at 6% of the portfolio — are also likely to be removed or watered down later this year.
"The issue now is whether the FHFA under new leadership will reach a different agreement with the U.S. Treasury Department on the types of loans that Fannie Mae and Freddie Mac will purchase," wrote Richard Andreano Jr., practice co-leader in mortgage banking for Ballard Spahr LLP, in a blog post.
Fratantoni said the industry is hoping for a "steadier hand" under Thompson, pointing to numerous policy changes under previous Director Mark Calabria, who tried to put the agencies on a path to privatization. "One of the challenges the industry faced with the prior FHFA director was a number of policy announcements that really caught the industry off guard," Fratantoni said.