Housing Affects Mortgage Loans

?According to the Federal Reserve’s annual analysis of mortgage data gleaned from the Home Mortgage Disclosure Act, recent declines in lending have been greater in neighborhoods that have been hardest-hit by foreclosures and price declines. Many of those same neighborhoods saw high concentrations of subprime and other exotic mortgages during the housing boom. The Federal Reserve found that lenders originated just 7.9 million mortgages in 2010, down 12% from 2009. The only year with a lower total in the past decade was 2008, with 7.2 million new mortgages that year.

The Federal Reserve analyzed mortgage data provided by more than 7,900 mortgage lenders that was reported to regulators under the Home Mortgage Disclosure Act. The trend seems due to in part from declines in loans to borrowers and investors who don’t use the homes as their primary residences. The report also found a growing concentration of lower-income borrowers in those communities. Higher-income borrowers accounted for 29% of all loans in those distressed neighborhoods in 2010, compared with 52% of all loans in those same neighborhoods in 2005. In less-distressed neighborhoods, higher-income borrowers accounted for more than half of all loans in 2005 and 43% of loans last year. The result is that changing income patterns in the distressed neighborhoods could slow the economic recovery of communities that have seen big housing price declines as well as a high number of foreclosures.

The findings also point to the difficulties many Americans are currently having refinancing their existing mortgages. Far too many homeowners have not been able to qualify for low interest rate loans because they did not have enough equity in their homes. The fact that lending standards are now much stricter than they were when most people initially took out their loans did not help. The Fed’s report pointed out that if loan

underwriting standards had been a bit looser and home equity was not a factor, an estimated additional 2.3 million homeowners might have been able to refinance last year alone. That translates to a near 50% increase over the 4.5 million borrowers who were lucky enough to be able to refinance last year.

Arizona, California, Florida, Michigan and Nevada are states that have seen the huge home-price declines along with a corresponding drop in refinance loans. In those five states, just 6.4% of borrowers with credit scores between 680 and 719 refinanced last year, compared to the 9.7% of borrowers who successfully refinanced in the remaining 45 states. The Federal Reserve’s report shows the mortgage market’s overly heavy reliance on government-backed mortgages in a market the Federal Housing Administration accounted for more than half of all loans for home purchases in 2010. The Fannie Mae and Freddie Mac agencies accounted for nearly one-quarter of all purchase loans and more than half of all refinances in the same period.

The report also warned that unless Congress intervenes, borrowing costs could continue to rise and lending could decline in certain high-cost housing markets where the size limits for government-backed loans will decline at the end of the month. Proposed new loan limits will drop from the current $729,750 down to $625,500 in some of the more expensive markets in the nation. The Federal Reserve report also estimated that the decline in loan limits would boost the volume of loans by more than 20% in the nation’s 250 counties where loan limits are set to decline.