Mortgage Closing Costs and Fees Leapt 22% in 2022, Study Shows

 Residential mortgage lending activity declined sharply in 2022 as rates, closing costs and denials for insufficient income surged, a new report shows.

"The higher interest rate environment had profound effects on the mortgage market in 2022, with borrowers paying much more in monthly payments,” said Rohit Chopra, director of the Consumer Financial Protection Bureau (CFPB). “These trends are likely to continue given further increases in interest rates in 2023.”

The CFPB annual report on residential mortgage lending activity and trends shows a significant decline in mortgage applications and originations last year as interest rates, fees and other costs sharply increased.

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That trend is also borne out in the latest Mortgage Bankers Association weekly mortgage applications survey, which showed that high interest rates has caused mortgage demand to shrink.

The CFPB report shows that more borrowers (50.2%) also paid discount points in 2022 than in any other year since 2018 when data collection began in this area. The median borrower paid $2,370 for discount points in 2022, up 32.1% from 2021, the report shows.

The report’s findings are based on data collected under the  Home Mortgage Disclosure Act, which requires financial institutions to collect and make public certain loan-level information on mortgage applications and originations. 

Borrowers that did get mortgages in 2022 saw average monthly mortgage payments soar 46% as the median interest rate for a 30-year, fixed rate mortgage at the end of the year was 6.5% and closing costs increased 21.8% from 2021 to an average of $5,954, CFPB said.

The number of refinances plunged 73.2% to 2.2 million, with the majority of these being cash-out refinances originated by independent lenders. Home equity lines of credit were the only form of refinancing to show an increase, rising 33.3% from 2021.

Disparities in outcomes for Black and Hispanic borrowers

The report also found disparities in outcomes with Black and Hispanic borrowers faring worse when it comes to approvals, loan sizes and fees, Chopra said. However, he added, some of these disparities shrank or disappeared for FHA loans.

“Black and Hispanic borrowers were denied loans at higher rates, received smaller loans, were charged higher interest rates and paid more in upfront fees than white and Asian borrowers,” Chopra said. 

For example, the median interest rate for Black and Hispanic borrowers in 2022 was above 5%, while the median rate was below 5% for white and Asian borrowers, according to the report.

Lenders denied loan applications due to insufficient income at a higher rate in 2022 than at any other point since 2018, the report shows.

In response to the report, Chopra said that the CFPB will “devote more attention to ensure that borrowers can sufficiently navigate alternatives to foreclosure when faced with financial distress.” 

That includes, for example, exploring amendments to mortgage servicing standards and looking for ways to simplify the refinancing process for borrowers, he said. 

The CFPB encourages people to visit its website or call (855) 411-CFPB (2372) to submit complaints about mortgage or refinance issues or other financial products or services. 

Visit the agency’s consumer education center on mortgages for more information on getting and maintaining a mortgage. 

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