Demand for home loans falls sharply amid rising interest rates

UPDATED, Sept. 18, 11:43 a.m.: Home loan originations fell across much of the U.S. in the second quarter as rising interest rates have made mortgages more expensive.

The sharpest drop was in Los Angeles, where mortgage originators completed almost 70,000 loans in the metro area from April to June. It was an 11 percent drop from the same time last year, according to a report publish Thursday from Attom Data Solutions. That also marked the fewest amount of originations in the L.A. area in four years.

Other cities such as San Francisco and Chicago also saw declines, the report showed. In Chicago, total loan originations fell 9 percent to 56,332.

More than 2 million home loans were originated in the second quarter, an increase of less than 1 percent from a year ago, according to Attom Data.

The number of refinancing loans ticked down 2 percent on a year over year basis, to 799,093. Rising interest rates have made refinancing a home mortgage less appealing.

The data revealed broader challenges facing homeowners across the country as mortgage rates continue to increase and home loan payments become costlier.

Among the bad news, foreclosures and delinquencies are rising in major U.S. cities based on previous reports, and down payments are reaching record highs, according to Attom. This has made buying a new home more difficult for many first time buyers.

Overall, the median down payment amount on single family homes nationwide also ticked up. For the second quarter, it was $19,900, up from $16,925 over the same period last year. The amount is the highest since Attom began tracking it in 2000.

With home down payments rising, more buyers had to enlist financial help from friends and family and others to purchase their home. Those “co-buyers” now account for close to 18 percent of all-single family home purchases. Miami, which suffers from a lack affordable housing — like many major metros — had one of the highest percentages of co-buyers at 29 percent.

Over the past few years, many banks and traditional lenders have backed away from originating residential mortgages due to low margins and increasing competition from so-called non-bank lenders.

Companies such as Quicken Loans and loanDepot accounted for more than half of all mortgage originations in 2016, the Federal Reserve and University of California-Berkeley showed in a published paper. Non-bank lenders claim they can originate loans faster and at a lower cost to consumers, but the authors of the paper also warned about their liquidity risks.

Correction: Because of incorrect data provided by Attom Data Solutions, a previous version of this article inaccurately reported that originations dropped to a four-year low across the U.S. In fact, that was only the case in Los Angeles.