Mortgage Applicants Face Greater Difficulties

by 09 May 2012

(TheNicheReport) -- Mortgage interest rates hit historical low levels in early May, according to mortgage investment giant Freddie Mac, and yet most Americans are unable to enjoy them. Adding the fact that median home prices are currently at their lowest levels in the 21st century, the combination of these two factors is a perfect storm for homebuyers.

A housing bonanza, however, has failed to materialize in the disappointing American real estate landscape. The culprit is easy to point out: mortgages are simply too hard to get. The lending criteria imposed by mortgage lenders in the United States have become the bane of all borrowers. The problem is not in the credit histories or the borrowers’ ability to repay. The problem resides in the bank’s choice of mortgage applicants and low tolerance for risk.

According to the April 2012 Senior Loan Officer Opinion Survey on Bank Lending Practices released by the Federal Reserve Board, the cost of private mortgage insurance has turned prohibitive for some borrowers. This fact alone is very influential on the decisions taken by mortgage lenders.

Fannie Mae and Freddie Mac are also to blame, to a certain degree. The two government-sponsored enterprises (GSEs) have been very busy demanding that mortgage lenders take back mortgage loans guaranteed and purchased by the two GSEs. While many of these loans go back to the heady days of the housing bubble, the repurchase process is making banks nervous about their home lending operations.

Housing prices are also on the minds of the mortgage bankers. There is little evidence that collateral values will sharply improve in the near future, and banks see this as possibly eroding the value and marketability of their mortgage portfolios.

The risk aversion of banks with regard to mortgage lending has reached ludicrous proportions. Home buyers who do not have 20 percent down payments at their disposal are being passed over by many mortgage lenders. This is a major concern for economists who think that the American middle class is being unfairly kept out of the housing market.



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