Even good buyers are being shut out of home loans by nervous bankers and stricter government requirements. No one knows when this ‘mortgage drought’ will end. But the market forces that concern bankers don’t bode well.
By Marilyn Lewis of MSN Real Estate
Banks are awash with money. But you can’t get a mortgage loan. How crazy is that?
If you’ve been rejected for a loan, you’re in good company. Lenders are rebuffing nearly a third of the people who apply for money to buy a home, the Mortgage Bankers Association says. It’s worse if you’re refinancing: Nearly half of all applicants are turned away.
We talked with experts about what’s behind the mortgage drought and how long it’s likely to last. If you hope to buy or sell a home or refinance into historically low mortgage rates, it’s a good idea to understand the market.
The drought in homeowner credit is bad, says Matthew Kover, manager of the mortgage-loan division at Port Orchard, Wash.-based Kitsap Bank, with 20 branches in communities west of Seattle.
“I turn away solidly 50% of the loans I originate,” he says. That means that of all the applications he tries to get through the approval process, only half become loans. It doesn’t include all the would-be borrowers he sends home to polish their credit scores and beef up their applications.
After the circus
At first, Kover says, he welcomed a return to conservative lending principles after seeing prudent requirements practically tossed out the window in the mortgage bubble. But he says the restrictions have gone too far.
“I’m continually making excuses to customers for regulations that really don’t have any justification,” he says.
On our blog, ‘Listed’: HUD: Lenders can’t deny loans to new mothers
Banks and the federal government have tightened lending requirements. Each blames the other for the difficulties consumers have getting financing. It’s all a reaction to the big mortgage circus a few years back, when government regulators were lax, banks were handing out easy money and borrowers racked up debts they couldn’t pay.
The riskiest loans, made from 2004 to 2007, still haunt banks: The federal government now owns many of them and is forcing banks to buy some back.
MSN Money: Remember 16% interest rates?
Home affordability calculator
Combined annual income $
Other monthly obligations $
Cash for down payment $
The effects reverberate on Main Street. Government supervisors have lenders under a microscope.
“People with FICO scores under 700, which is still good credit, are getting cut from the market because the government is being so tough on the banks over mortgages that went bad. And the banks are like, ‘I’m not going to loan to these people anymore,’” says Paul Miller, mortgage analyst with FBR Capital Markets & Co.
Banks don’t have to follow those strict government requirements. But Fannie Mae and Freddie Mac buy 56% of all mortgages in the U.S., which means banks can keep the fees and billing work yet use the money again to make more mortgages. So they abide by government rules.mortgages, real estate, real estate investments