Mortgage loan origination fell between 2009 and 2010, despite a drop in home prices and the presence of record low mortgage rates, according to HMDA data parsed by the Fed.
Interestingly, purchase money mortgage volume suffered less than refinance volume, though that could be partially attributed to the homebuyer tax credit, which spurred buying somewhat.
And the fact that purchase activity was already depressed, so it didn’t have as much room to slip lower.
Still, home purchase loans were off nearly nine per cent from 2009 and 62 per cent lower than numbers seen in 2006, before everything went so very wrong.
Meanwhile, refinance volume fell about 14 per cent as compared to 2009, while the 30-year fixed hit a record low 4.17 per cent.
Of course, it wasn’t for a lack of interest; it had more to do with issues holding back homeowners.
A lack of home equity, more rigorous underwriting carried out by mortgage lenders, and the presence of second mortgages all hindered refinancing.
The Home Affordable Refinance Program was implemented to address some of these concerns, by allowing homeowners to refinance up to 125 per cent loan-to-value, but it has done much less than anticipated.
Who Got to Refinance?
You may be wondering who exactly got to take advantage of the record low rates last year.
Well, the data points to consumers with credit scores of 820 or higher whose loans were originated between 2006 and 2008, when interest rates were relatively high.
This appeared to be the single most important factor – all the more reason to have a great credit score folks.
Refinancing was also much more common in areas that didn’t experience significant home price declines, as LTV constraints shut many out of the market, namely because they purchased homes with zero down or refinanced previously and pulled cash out, thereby zapping their home equity.
Without these limitations, the Fed estimates that an additional 2.3 million owner-occupied refinance loans would have been originated in 2010, on top of the roughly 4.5 million actually funded.
Since last year, mortgage rates have touched new lows, spelling more opportunity for those looking to save on their monthly mortgage payments.
But it also means millions more will miss out on these potential savings unless banks/the government ease underwriting standards to accommodate these problems.
For the record, HMDA data covers roughly 90 to 95 per cent of FHA loans and between 75 and 85 per cent of other first lien home loans.
This post originally appeared on The Truth About Mortgage blog.
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