Mortgage Lending Hit 16 Year Low in 2011

MCT)—If you tried to get a mortgage last year and failed, or were put through the wringer first, you are in good company.

Of the 11.7 million mortgage applications received by lenders in 2011, only 7.1 million resulted in loan originations, data on transactions covered by the Home Mortgage Disclosure Act show.

About 2.9 million loans were purchased for sale to investors on the secondary market.

The act, approved in 1975, requires lending institutions to report public loan data.

Mortgage lending actually fell to a 16-year low, the data show.

There also were fewer lenders in the market. In 2006, this data covered slightly more than 8,900 lenders. In 2011, it covered 7,632, according to the Federal Financial Institutions Examination Council, who made the data available earlier this week.

In the aftermath of the financial meltdown of September 2008 and as more home loans soured, lenders tightened their underwriting requirements.

To determine whether buyers could qualify for mortgages, real estate agents have been urging prospective clients to obtain prior approval of loan amounts needed to finance the purchase of a house.

Before the meltdown, the typical buyer was “prequalified,” meaning that the loan officer of the bank would, using income information provided by the potential borrower, detail the amount of the mortgage for which the applicant qualified.

The 2011 data showed that 186,000 of 483,000 requests for these preapprovals didn’t result in a mortgage loan.

The total number of originated loans of all types and purposes reported fell by about 780,000, or 10 percent, from 2010, in part because of a 13 percent decline in refinancings.

Lending for home purchases also declined five percent.

The data reflect a continued heavy reliance on loans backed by the Federal Housing Administration, or FHA, insurance that began with the start of problems in the mortgage market.

During the boom years of 2005 and 2006, only three percent of all loans originated for home purchases were insured by the FHA. In 2007, that percentage increased to seven and then jumped to 26 percent in 2008.

The trend continued in 2009 and 2010, with 37 percent and 36 percent, respectively, of loans FHA insured. In 2011, the FHA share fell to 31 percent.

Edward Pinto of the American Enterprise Institute, a longtime critic of this kind of reliance on the FHA, told the American Mortgage Conference on Sept. 12 that the agency “needs to return to its traditional mission of being a targeted provider of mortgage credit for low- and moderate-income Americans and first-time homebuyers.”

“It performs a disservice to American families and communities by continuing practices that result in a high proportion of families losing their homes,” he said.

When it was established in 1934 by the Franklin D. Roosevelt administration, the FHA insured fully amortizing 20-year term loans combined with a 20 percent down payment.

“As a result, homebuyers accumulated nearly 30 percent equity after four years without relying on inflation,” Pinto said.

By 1954, the FHA had insured 2.9 million mortgages, yet had paid claims on only 5,712 properties, for a cumulative claims rate of 0.2 percent.

“Today, the FHA has 7.5 million loans outstanding and pays 12,000 claims per month,” Pinto said. “This is not your great-grandmother’s FHA.”

First-lien lending for home purchases backed by Veterans Administration guarantees has also increased in recent years, although VA-backed lending represents a smaller share of the market.

The VA marketshare of first-lien home purchase loans increased from nearly three percent in 2007 to about seven percent in 2009 and 2010, and to eight percent in 2011.

Overall refinancing numbers were down in 2011 from 2010, even though fixed interest rates reached record lows during the year, remaining below four percent.

Refinancing volume fell primarily because many borrowers could not qualify for loans because of home-equity losses. Nearly 23 percent of all borrowers owed more on their mortgages than their properties were worth.

Although both the number of conventional and FHA-related refinancings fell from 2010 to 2011 — 12 percent and 37 percent, respectively — the volume of VA-guaranteed refinancing activity rose about 41 percent.

For the second full year, the data include reporting on whether a loan is “higher priced.” Under new rules, lenders now report loans with annual percentage rates 1.5 percentage points above the rates reported by Freddie Mac in its Thursday surveys for first lien loans and 3.5 percentage points for second mortgages.

The data show a minority of first-lien loans in 2011 with APRs exceeding the loan price reporting thresholds.

The principal exception was for conventional mortgages for manufactured homes — 82 percent exceeded the reporting threshold in 2011.

For conventional first-lien loans used to purchase new homes, 3.9 percent exceeded the reporting threshold, which was a 3.3 percent increase from 2010. For FHA-insured loans for new homes, higher priced mortgages accounted for 3.8 percent.

Only 0.4 percent of VA loans were higher-priced in 2011.

Black and Hispanic white applicants experienced higher loan denial rates than non-Hispanic white applicants, the data show.

The denial rate for Asian applicants was virtually the same as the corresponding denial rate for non-Hispanic white applicants.

These relationships are similar to those found in earlier years, the data show.

Read Full Article

Home Sales and Job Creation would Rise with Sensible Lending Standards

Image

WASHINGTON (September 17, 2012) – New survey findings, combined with an analysis of historic credit scores and loan performance, show home sales could be notably higher by returning to reasonably safe and sound lending standards, which also would create new jobs, according to the National Association of Realtors.

Lawrence Yun, NAR chief economist, said there would be enormous benefits to the U.S. economy if mortgage lending conditions return to normal.  “Sensible lending standards would permit 500,000 to 700,000 additional home sales in the coming year,” he said.  “The economic activity created through these additional home sales would add 250,000 to 350,000 jobs in related trades and services almost immediately, and without a cost impact.”

A monthly survey* of Realtors® shows widespread concern over unreasonably tight credit conditions for residential mortgages.  Respondents indicate that tight conditions are continuing, lenders are taking too long in approving applications, and that the information lenders require from borrowers is excessive.  Some respondents expressed frustration that lenders appear to be focusing only on loans to individuals with the highest credit scores.

Even though profits in the financial industry have climbed back strongly to pre-recession levels, lending standards still remain unreasonably tight.

Yun said all it takes is a willingness to recognize that market conditions have turned in the wake of an over-correction in home prices, with all of the price measures now showing sustained gains.  “There is an unnecessarily high level of risk aversion among mortgage lenders and regulators, although many are sitting on large volumes of cash which could go a long way toward speeding our economic recovery.  A loosening of the overly restrictive lending standards is very much in order,” he said.

 Respondents to the NAR survey report that 53 percent of loans in August went to borrowers with credit scores above 740.  In comparison, only 41 percent of loans backed by Fannie Mae had FICO scores above 740 during the 2001 to 2004 time period, while 43 percent of Freddie Mac-backed loans were above 740.

In 2011, about 75 percent of total loans purchased by Fannie Mae and Freddie Mac, which are now a smaller market share, had credit scores of 740 or above.

There is a similar pattern for FHA loans.  The Office of the Comptroller of the Currency has defined a prime loan as having a FICO score of 660 and above.  However, the average FICO score for denied applications on FHA loans was 669 in May of this year, well above the 656 average for loans actually originated in 2001.

Loan performance over the past decade shows the 12-month default rate averaged just under 0.4 percent of mortgages in 2002 and 2003, which is considered normal.  Twelve-month default rates peaked in 2007 at 3.0 percent for Fannie Mae loans and 2.5 percent for Freddie Mac loans, clearly showing the devastating impact of risky mortgages.

Yun said home buyers in recent years have been highly successful.  Since 2009, the 12-month default rates have been abnormally low.  Fannie Mae default rates have averaged 0.2 percent while Freddie Mac’s averaged 0.1 percent, which are notable given higher unemployment in the timeframe.

Under normal conditions, existing-home sales should be in the range of 5.0 to 5.5 million.  “Sales this year are projected to rise 8 to 10 percent.  Although welcoming, this still represents a sub-par performance of about 4.6 million sales,” Yun said.  “These findings show we need to return to the sound underwriting standards that existed before the aberrations of the housing boom and bust cycle, and thoroughly re-examine current and impending regulatory rules that may cause excessively tight standards.”

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.

4 out of 5 Americans Unwilling to Buy a Home, Despite Home Ownership Advantages

Record low mortgage rates and affordable home prices aren’t enough to encourage more Americans to take the home-buying plunge.

As the housing market picks up steam, four out of five Americans remain unwilling to buy a home or even refinance their mortgage, according to a recent Harris poll.

Jobs – or the lack of them – is a major factor.

The nationwide Harris survey conducted for Union Plus, the benefits arm of the AFL-CIO union trade group, found that 53 percent of respondents had major concerns about the economy – especially job loss.

Economists expected 125,000 new jobs in August, but the nation’s employers managed to create only 96,000 jobs, according to the Labor Department.

The unemployment rate fell to 8.1 percent, but only because more discouraged people left the labor force.

Among other findings, 83 percent of the Harris Poll respondents expressed concern that “closing costs for purchasing or refinancing a home are too high.”

Only workers between the ages of 18 and 34 were slightly more likely to invest in housing over the next year.

To coincide with the study and encourage union members to take advantage of historic low interest rates, Union Plus launched an awareness campaign for union members to learn more about the advantages of buying a home.

“With only 18 percent of working families willing to invest in buying new homes, what this poll tells us, first and foremost, is that we need to help working Americans feel confident about investing in housing,” said Union Plus President Leslie Tolf. Confidence can come in knowing the benefits of homeownership.

Appreciation

Perhaps the largest benefit is appreciation, and right now that’s a much better bet than it has been in years.

Appreciation occurs when the value of the property increases due to supply and demand factors, home improvements and other factors.

Appreciation is like interest on an investment. It creates equity you can tap for other investments, say, to start a business, to send a kid to college or to buy a second home or investment property.

Accumulate enough equity and you can move up to a larger home or a better neighborhood or move down and save the difference for retirement.

Many homeowners rely upon appreciation and accumulated equity as a nest egg for their retirement years.

Tax benefits

Homeownership is the mother of all tax shelters.

Inside the Mother of all Tax Shelters is the Mother Of All Tax Breaks – the deduction for mortgage loan interest. Mortgage interest payments comprise a large portion of your mortgage payment in your loan term’s early years.

Just as big is the capital gains exclusion – married taxpayers who file jointly get to keep, tax free, up to $500,000 in profit on the sale of a home used as a principal residence for two of the prior five years. The amount is halved for singles or marrieds filing separately.

Also deductible is the interest on a home improvement loans, home loan points, property taxes, home-based business expenses and some selling and moving costs.

A tax professional can spell out the details of these tax benefits and others that come and go.

Your castle

Your home is your castle to reconfigure anyway you see fit with home improvements and renovations – within local zoning ordinance requirements, of course, and less so if you buy a condo.

None of those benefits are available (except for the home-office deduction) when you rent or live at your parents’ home.

What Influences Credit Scores?

Its a three-digit number that carries a lot of influence over your future. It can dictate whether or not you’ll qualify for a home, car, or business loan. It can also be the deciding factor in whether or not you qualify for a low interest rate.

What exactly is a credit score and what factors contribute to its number?

A credit score is a number from 200 to 800 that reflects your payment and borrowing history. Are you a big spender? Do you make payments faithfully and on time? It’s what lenders use to decide a number of factors, including whether or not to lend to you.

There are three main reporting agencies: TransUnion, Experian, and Equifax. Can a credit score from these agencies be biased? The simple answer is no. Your credit score is a true and honest reflection of your debt and payment history. This means that neither a lender nor credit agency can “have it out for you.” You are the only person responsible for your score.

There are several factors that contribute to this score.

  • Type of Credit: Lenders want to see that you have a history of multiple types of credit. This can include credit cards, installment loans, and mortgages. 
  • Amount of Debt: The more debt you have the riskier you appear to a lender. This means paying down or off debt is a great way to make yourself more desirable for a home loan.
  • Payment History: You want to be on time with every bill. This includes everything from cable and phone to credit card payments. Late payments may be reported to the credit reporting agencies and will negatively affect your score.
  • New Credit: Do NOT under any circumstances open new lines of credit, no matter how small, before you start looking for a home. Several new lines of credit will dock your score and may indicate to a lender that you are on a spending spree.
  • Credit History Length: Younger borrowers are always at a slight disadvantage because they have a shorter credit history. A longer credit history gives lenders a better picture of what kind of borrower you really are.

    Be sure to check out your credit report three times a year at annualcreditreport.com. It’s free, easy, and secure. You’ll have to pay a nominal fee in order to see your score, but checking out your report can help you assess areas that need improvement or areas that have errors which need corrected.