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Why banks are worried: Lending activity dropping in 2022

Why banks are worried - Lending activity dropping
by Brad Cartier, posted in Newsletter

As the Federal Reserve announced an increase in the lending rate of 0.5%, lenders are getting worried about the prospects of business volume. The 30-year fixed-rate is now sitting at 5.1% according to the St. Louis Federal Reserve.

30 year fixed rate sits at 5 - Fed

Source: Freddie Mac, 30-Year Fixed Rate Mortgage Average in the United States [MORTGAGE30US], retrieved from FRED, Federal Reserve Bank of St. Louis; May 2, 2022.

Diana Olick of CNBC last week reported on new data that predicts mortgage originations will total $2.58 trillion this year, a 35.5% decrease from 2021. Further, refinance demand dropped 62% year-over-year as rising interest rates keep homeowners on the sidelines.

Indeed, the Mortgage Bankers Association’s (MBA) weekly survey for the week ending April 22, 2022, shows that mortgage loan application volume dropped 8.3% on a seasonally adjusted basis. More surprisingly, this was 71% lower than the same week in 2021.

Similarly, Flávia Furlan Nunes of Housing Wire reports on Fannie Mae’s data showing a similar sentiment of reduced mortgage demand over the coming year. Fannie’s Economic and Strategic Research (ESR) Group reduced its projected mortgage origination volume for single-family homes in 2022 from $3 trillion to $2.8 trillion. Further, it also reduced its 2023 forecast from $2.7 trillion to $2.4 trillion. Note that in 2021, the total origination sat at $4.5 trillion.

More reporting from Housing Wire shows the current sentiment among mortgage lenders with Flagstar Bancorp reportedly cutting 20% of its mortgage staff, and other lenders proactively outlining how they plan to survive during these times of reduced mortgage demand.

With interest rates on the rise, you may be thinking about buying or refinancing a rental property. Stessa makes it easy to check current rates from experienced lenders.

Crypto mortgages

As demand wanes for traditional mortgage products amid higher rates, attention moves more toward alternative monetary products like crypto-currencies. According to Heather Perlberg of Bloomberg, Fannie Mae is already allowing borrowers to use crypto for down payments, and companies like Milo are allowing borrowers to use crypto as collateral for mortgage borrowing.

Connie Kim of Housing Wire reports that companies such as Abra and Propy now allow homebuyers to secure a home loan using their crypto holdings as collateral. This is more evidence that the lending industry and crypto are moving closer together. According to Kim:

“The Abra Borrow platform allows customers to use crypto as collateral to borrow US dollars with flexible repayment terms and interest rates as low as 0%, said Propy, a real estate blockchain startup headquartered in Palo Alto, California in a release. Propy uses NFTs to close the entire real estate deal online.”

Similarly, Hannah Lang of Reuters reports that “Digital banking platform Revolut is working on expanding into decentralized cryptocurrency wallets and is also looking at the mortgage sector.”

Daren Fonda of Barron’s has an interesting piece titled, Bitcoin-Backed Mortgages Are Coming. Here’s What That Means for Buyers, wherein she notes that “crypto loans are trying to break out in a tough market. And while perhaps appealing to some borrowers, they don’t appear to offer a better deal on rates than conventional financing.”

Even traditional banks are further embracing crypto, with Goldman Sachs being one of them. According to The Street, Goldman just took a step in the crypto-related services by establishing its first lending facility backed by bitcoin. “Basically, Goldman Sachs allowed, through this transaction, the borrowing client to use bitcoin (BTC) as collateral to obtain a cash loan.”


The National Association of Realtors (NAR) released a report last week indicating that we may be entering a normalization phase for the housing market. Specifically, pending sales dropped for the fifth month in a row, down 1.2% in March. Also, pending sales fell for the tenth consecutive month year-over-year by 8.2%.

Lawrence Yun, NAR’s chief economist, had this to say about the data:

“The falling contract signings are implying that multiple offers will soon dissipate and be replaced by much calmer and normalized market conditions…As it stands, the sudden large gains in mortgage rates have reduced the pool of eligible homebuyers, and that has consequently lowered buying activity. The aspiration to purchase a home remains, but the financial capacity has become a major limiting factor.”

Indeed, Tim Ellis of Redfin reports similar data pointing to a more normal market, with their demand index falling for the first time since June, and the share of sellers reducing their asking price was the highest in the past five months. Further, asking prices appear to be plateauing.

Home prices appear to plateau

Source: Redfin (April 2022)

Redfin Chief Economist Daryl Fairweather noted:

“The lull in homebuying and selling activity that we saw over Easter and Passover is likely to continue well past the holiday weekend…The forces causing many homebuyers to pump the brakes are still in place—increasing mortgage rates and record-high home prices. We expect price increases to slow and buyers in bidding wars to face fewer competing offers, but substantial relief for homebuyers is unfortunately still well beyond the horizon since the housing market is still tilted further in sellers’ favor than at any time in history.”

A similar Redfin article by Lily Katz shows that competition is dropping slightly. Reportedly, 65% of purchase offers faced competition in March, down from 67% in February, but still slightly up from a year ago.

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