Want to give the economy a little boost and get a new home out of it? Your biggest obstacle might be the bank.
The Wall Street Journal recently reported that mortgage application rejections increased last year over 2009 in every state excluding Delware. The nation's 10 largest mortgage lenders denied 26.8% of loan applications in 2010 compared with 23.5% in 2009. These figures don’t take into account the amount of would-be buyers who are discouraged from even applying. Overall, the strictest areas for loan creation are in the Rust Belt and the South. At the metropolitan level, you’ll have the hardest time getting a loan in Miami, Detroit, and New Orleans, while in Raleigh, Bethesda, MD, and San Jose, CA credit is most readily available.
WSJ found that the most common denial code used by lenders was insufficient collateral, followed by inadequate debt-to-income ratios and poor credit. Naturally, many borrowers have been hurt by decreasing or interrupted income. People looking to refinance are having a difficult time because of the price tumble many homes have taken. In many case it's left them with less equity than they thought they had. Not exactly the kind of surprise most people enjoy.
So is this newfound austerity a good or bad thing? It’s common knowledge that irresponsible lending was one of the factors that caused the real estate mess we’re in today, but have things gotten too strict? Not according to Fannie May and Freddie Mac, together who purchase/guarantee nine out of ten loans being made today. Fannie’s chief economist described the new standards as “a return to historical standards.” There’s no denying the stricter guidelines have produced desired results, considering that only 0.3% of Freddie/Fannie backed loans recorded three consecutive missed payments in 2010, compared to 2.6% of the same loans in 2000. On the other hand, plenty of real estate professionals will say lending has swung from debaucherous blowout to funeral parlor mode. Inventory will stay high and sales will keep trending downward until homebuyers are able to actually buy, so there has to be some kind of happy medium that fosters a faster housing recovery.
Perhaps the appropriate tone is a housewarming party ?