Some numbers simply do not have the weight to capture headlines yet still are very telling about the mortgage industry and the economy. While researchers track numbers like housing starts, the number of applications accepted or the rate of foreclosure you rarely, if ever, see numbers which may tell a deeper story. In this instance the subject is the number of denied mortgage applications.
Number of applications
According to the Federal Reserve in a report dated September 30, 2009, the number of loans guaranteed by the Federal Housing Administration (FHA) increased by twenty-one percent in calendar year 2008. Meanwhile the number of applications for FHA insured loans which were denied grew to about thirty percent of the total number of applications meaning only two in three applications were approved.
Experience in the mortgage industry proves the reasons for denial range from lack of savings or liquid asset reserves to debt ratios exceeding reasonable limits for the applicants. Additionally most lenders began the practice in 2008 of applying what are known as "lender over-lays". These safeguards, intended to lower risk to the lenders, are additional qualifying factors which are added on top of the guidelines provided by insurers like FHA.
The recent increase in mortgage applications, up eight percent according to the Mortgage Bankers Association (MBA), is attributed to low rates, lower housing prices and the first time home buyer's tax credit which was recently extended into late spring of 2009. Ronald Temple, portfolio manager and co-director of research at Lazard Asset Management in New York, was recently quoted in the government friendly Reuters News Service as saying, "we may be headed back to rockier times as it relates to housing."
Changing reasons for denials
Reasons for application denial do change and as we move into a period of rising interest rates, believed by many experts including "America's Number One Mortgage Broker", BJ Brady, agrees with the author that we are only months or weeks away from seeing mortgage interest rates begin to steadily climb likely not stopping until they reach the double digits. At that point more loans than previously denied will face a steep challenge in the area of debt-to-income ratio. "The higher rates will simply prevent people from qualifying due to the higher monthly payment incurred," he says.
For more information contact the author at 678-439-8683 or email reibroker@gmail.com
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