About 1.1 million mortgages could have been processed in 2015 “if reasonable lending standards had been in place,” according to a new report from the Urban Institute. Add to that the 5.2 million mortgages lenders failed to make between 2009 to 2014 due to strict underwriting standards and that adds up to a whopping 6.3 million would-be borrowers sidelined from the market over a six-year period.
The report also notes that some borrowers who don’t have top-notch credit are being discouraged from even applying for mortgages. That has been reflected in a decrease in purchase applications, which dropped from 4.6 million in 2001 to 3.5 million in 2015.
Though the situation has improved some, strict lending conditions are continuing to frustrate borrowers. ULI estimates that if borrowers of all credit levels faced the same mortgage market in 2015 as they did in 2001, there would have been 1.4 million more loans in the below-660 credit score area (rather than the actual 503,000) and 849,000 originations for borrowers with scores of 660 to 700 (rather than 686,000).
The tightening of credit standards has led to a higher share of all-cash sales, which the report notes rose from 18 percent of total sales in 2001 to 33 percent in 2015.
Recent action by the Federal Housing Finance Agency is “modestly” helping to expand credit, ULI acknowledges. But much more still needs to be done to open up credit to more borrowers, the report urges.
“These missing loans don’t just mean 1.1 million families are deprived of sharing in the critical wealth-building opportunity of homeownership,” ULI’s report states. “Fewer home sales also mean fewer construction jobs and lower sales of consumer goods that home buyers purchase when they move into their new residence. Ultimately, this loss slows the entire U.S. economy.”
Source: “Gone Missing: 1.1 Million Loans,” Mortgage News Daily (Dec. 7, 2016)