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Top 10 Lenders Accounted For 70% Of Loan Originations In 2010


Yesterday, according to an analysis by The Wall Street Journal of mortgage data filed with banking regulators, the percentage of mortgage applications rejected by the nation's largest lenders increased, which spotlights how banks' cautious lending practices are hampering the nascent housing market recovery.  Recent surveys by regulators show no sign of credit easing so far this year.  "This gap between those than can get financing and those cannot get financing is only widening the disparities in the housing market," says Maggie Fox, of Cherry Picker Investments, a Chicago foreclosure buyer service for cash investors.

"There's no question that accessible credit is a problem," says David Stevens, chief executive of the Mortgage Bankers Association, an influential and politically connected lobbying group.  Among home-purchase applications, lenders denied 19.9% of applications, up from 18.2% in the previous year, while 27.2% of refinance applications were denied, up from 24.4%.  Nearly four in 10 banks reported tighter mortgage lending conditions for the 12-months ended in February, according to a survey published this week by the government's Office of the Comptroller of the Currency. Just 8% said that standards had loosened.  In all, the nation's 10 largest mortgage lenders denied 26.8% of loan applications in 2010, an increase from 23.5% in 2009.

Although lenders were expected to pull back from the freewheeling conditions that helped inflate the housing bubble, some economists argue they are now too conservative, and say that with the U.S. economy still wobbly, mortgages need to be easier to obtain for qualified borrowers, not harder.

Top Reasons For Mortgage Denial:

Inadequate debt-to-income ratios

Poor credit histories.

Insufficient collateral

Fear Of Not Meeting Lending Requirements / Fear Of Getting Denied

Refinance loans are harder for many borrowers to get because home values have fallen so sharply over the past four years, leaving many borrowers with much less equity than they thought they had.

"Another contributing factor to the mortgage rejection rates is large drop in home values, which in some areas have fallen back to 2000 - 2001 price levels," said Michael Hobbs, of PahRoo Appraisal & Consultancy, at a recent CREP event for Chicago real estate professionals.

"Unfortunately, these declines in asset values have not been matched by similar declines in the mortgage values.  Quite the contrary, it is the lack of adjustment of mortgage values in sync with asset values that has made this recession so painful fo so many.  We really only see cash buyers who are the strong owners and investors in this market," said Maggie Fox, of Cherry Picker Investments.  "We do not foresee any improvement in the market until at least 2013 or some form of government intervention in mortgage lending practices.", said Fox.

One sector that has truly benefited from this terrible situation is the real estate investor who is a cash buyer and can seize opportunity.  "There are more opportunities in this market to buy quality assets than I have seen in a long time," said Adam Wavrunek, managing broker of Domain Realty.  "We are seeing more Fannie Mae listings coming in at lower prices on a regular basis due to the continued slide in housing prices which allows more people the opportunity to buy houses than any time in the past three years," said Wavrunek.


Michael Hobbs   June 25, 2011

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