A significant drop in mortgage originations for the second consecutive quarter has industry insiders worried, as borrowers appear to be shying away from both refinance and new purchase lending in what is traditionally a peak season, according to a new report from ATTOM Data Solutions.

After dropping 3% in the second quarter of 2021, new mortgage originations fell an alarming 8% overall in Q3 this year.This is the first time in more than two years the industry has seen consecutive quarterly decreases, and this marks the largest single quarter drop in a year. 

It was also the first time in two decades that mortgages have fallen in both Q2 and Q3 during a single year, which are usually the most popular times to buy a home.   

“It’s still too early to say if the trends point to major shifts in lending patterns or the broader housing market boom,” said Todd Teta, chief product officer at ATTOM, in a statement. “But the drop-off is significant, especially for home-buying, which could suggest an impending housing market slowdown.”

New Borrows Dissipate

Perhaps most dramatic was the drop-off in new purchase loans. While refinance loans declined 13%, that was in line with a 15% decline in Q2; this shows  that many savvy homeowners have already taken advantage of staggeringly low interest rates.

New mortgage originations were actually up significantly in Q2—22% over Q1 of 2021 and a 52% increase over the second quarter of last year.

In Q3 of this year, however, new mortgages actually fell 2% from last quarter—still up 17% from Q3 of 2020 but a dramatic reversal of trends so far this year as a red-hot market for homes had consumers scrambling for loans. 

Teta added the second consecutive quarter with a drop in refinances seemed to confirm many analysts’ conclusions that homeowners no longer have the “voracious appetite” they did early in 2021 to lower their rate—though even that remains uncertain.

“We will be watching the lending trends extra closely in the coming months,” he said.

The Numbers 

The total dollar volume of loans also fell this quarter according to the ATTOM data, down 6% from last quarter to $1.15 trillion.

Refinances also shrank as an overall proportion of loans, down to 55% from 59% last quarter. The number of home equity loans were up overall 2% this quarter, after rising more than 17% last quarter. This is the first time since 2019 the industry has seen two consecutive quarterly increases in home equity originations.

The median down payment amount continued to rise, reaching another high point dating back to 2005. Borrowers put an average of $27,000 down on their homes, up almost 6% from last quarter and 41% over Q3 2020.

Jesse Williams is RISMedia's associate online editor. Email him your real estate news ideas to jwilliams@rismedia.com.

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