When the nation’s largest lenders rejected more mortgage applications than ever before, their actions threw light on how cautious banks have become and how this is obstructing the growing housing market recovery. According to The Wall Street Journal, 26.8% of loan applications were refused by the 10 largest mortgage lenders of the country in 2019.
Those who had applied for online payday loans in Florida but didn’t get them are having a hard time as their incomes continue to fall or they have periods of unemployment. Self-employed applicants are also finding it difficult to get loans, which they have never faced before.
Banks deny loans to borrowers because of insufficient collateral, insufficient debt-to-income ratios and poor credit scores. Now people in the US are experiencing income tax returns as another basis for loan denial.
Lending standards are unusually tight because government units like the Federal Housing Administration and others that account for over 9 out of 10 loans being made are under heavy pressure to avoid any losses. These firms buy or guarantee mortgages and so can influence the loans that banks are likely to approve.
Take the case of Amy Menell from the WSJ report who is a real estate agent with a small income in 2019. A divorcee with a cash settlement of $400,000, she was considering buying a house at a time when housing market rates were low. She applied for a bank loan but was told that she wouldn’t get the loan, although her credit score was above 800 and she was debt-free. She could get it if she put down over 50% on the house she wanted to buy. The fact that she did not have any proof of income for the past two years weakened her case.
Rejection rates are much higher now than in the past, although the highest ever was in 2017 when they were recorded at 32.5%. That was partly due to loan officers and brokers trying to see how far banks were willing to go. Extloansusa loan applications filed by consumers wanting to refinance their existing mortgages and those who wanted to buy new homes were both part of the mortgage data of The Wall Street Journal. 19.9% of new home buyers were denied loans, while 27.2% of refinance applications were rejected. Except for Delaware, there were increased loan application denials in every state and in ninety-one top metropolitan areas such as Detroit, Miami and New Orleans.
Although the economy is improving, standards on home loans continue to be tight, chiefly due to the aggressive efforts of units like Fannie and Freddie that force banks to repurchase loans even if they default on payments.…