Mortgage application denial rates last year were highest in the South and along the Rust belt, according to a WSJ analysis.

Here’s the WSJ:

“The percentage of mortgage applications rejected by the nation’s largest lenders increased last year, spotlighting how banks’ cautious lending practices are hampering the nascent housing market recovery.

In all, the nation’s 10 largest mortgage lenders denied 26.8% of loan applications in 2010, an increase from 23.5% in 2009, according to an analysis by The Wall Street Journal of mortgage data filed with banking regulators.

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.

The pendulum swings the other way . . .


Tighter Lending Crimps Housing
WSJ, JUNE 25, 2011

Category: Credit, Real Estate

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22 Responses to “US Mortgages: 26.8% Rejection Rate”

  1. rktbrkr says:

    Does anyone know if banks are more flexible issuing mortgages for buyers of their REO sales? Just curious.

    Some surprising rates here, TX which has had relatively stable RE has a higher rate than FL,CA,NV and AZ,Vermont is very high too, maybe ski chalets there?

    With huge inventories of REOs and REOs in process the banks are kind of shooting themselves in the foot again, just a different foot.

    Double dip now, second great depression when the banks have to recognize their mortgage losses and the Sunday night meeting start with Turbo Timmmy, hope he kept some of Paulson’s blank IOU forms.

  2. louis says:

    I thought the point of the last few years was to get the ball rolling and make some loans? Guess not.

    At least we have confidence in our markets.

  3. whskyjack says:


    from my experience the REO division and the loan division are two seperate entities and one doesn’t talk to the other. or so it seems. You get the same treatment wheather you are buying their bank owned property or a competing banks property.
    I ask about a BOA property and they looked at me like I was an idiot. But we had no trouble financing through another bank that we deal with


  4. rktbrkr says:

    Jack, thanks for your insight. I’m not surprised there is a chinese wall like that but as a financial auditor when I hear the term “chinese wall” I think “swiss cheese”, but apparently there is institutional bias to make deals work – which would probably be in their best interests.

  5. whskyjack says:

    What I’m seeing in this working class neighborhood, is that they are lowering the initial asking price on REO to move them faster. Also, in some neighborhoods where countrywide type loans were dominate they are even paying nonprofits to take the houses off their hands. One of the idiot nonprofit people was all giddy about it. they gave him the house plus $7500. which is about what it cost to demolish the house and for most of them is what should be done as they are obsolete as housing.

  6. whskyjack says:

    I think it takes a smaller bank to be that nimble. Places like BOA have huge bureaucracies and a bureaucrat is a bureaucrat.

  7. rktbrkr says:

    I should have said “NO institutional bias”

    I also wonder if it is one and done with these rejections, do the would be buyers just hang their heads and walk away or do they try again with a different lender or find a relative to help? I also wonder how many of these are thumbs down on refis – esp if it’s because they’re underwater. If banks are rejecting large numbers of mort applics esp refis that are underwater while they hold huge numbers of REOs then they are really accelerating a death spiral that includes them. Think Pequod and Moby Dick going down together

    I wonder how these rates compare to the historic norm, higher for sure but how much higher

  8. foosion says:

    >> with the U.S. economy still wobbly, mortgages need to be easier to obtain for qualified borrowers>>

    I suppose it depends on what is meant by “qualified borrowers.” Perhaps the banks have decided to only lend to people who have sufficient documentation to show that they are likely to pay back the loans. Perhaps the rejection rate reflects an increase in applicants rather than just a tightening in standards.

    Just because we bailed out the banks so that they would make credit more available doesn’t mean the banks are under any obligation to make credit more available. Perhaps handing out money to banks with no strings attached wasn’t the best idea if the concept was to have them make loans.

  9. rootless says:

    Should a 26.8% rejection rate sound excessive? It doesn’t to me.

  10. timabbott34 says:

    Articles like this make me incredibly frustrated.

    “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.”

    Mortgages need to be EASIER to obtain? If you can scrape together 3.5% for a down payment (or have 3.5% equity in your property), maintain a credit score in the mid 600 range, and have a debt-to-income ratio in the low 40% range, you can buy or refinance a house today with a fixed rate in the high 4% to low 5% range! I would not lend this borrower $1,000 of my own money, let alone enough money to buy a home. Yet these terms are freely available all across the United States courtesy of FHA.

    The problem has been (and will continue to be) borrowers applying to refinance with a property that is significantly underwater and/or no longer having the income to support a mortgage that they were previously qualified for. It has nothing to do with the fact that “banks’ cautious lending practices are hampering the nascent housing market recovery.” A return to semi-responsible lending should not be blamed for hampering the recovery.

    Also, if you read the entire article, there are references to self-employed borrowers having a harder time borrowing money. ” Some self-employed applicants are also hitting barriers to loans—hurdles they didn’t face in the past.”

    These hurdles include such ridiculous demands of providing two years of tax returns to verify your income. With the exception of 2002 through 2007 (approx) when there were a number of reduced documentation loans available, the requirements for self-employed borrowers are virtually identical to the requirements of the past several decades.

    Whether you agree or disagree, the fact of the matter is that a number of people lie on their tax return and mortgage application. What has changed from a few years ago is that you now have to tell the same lie to both parties (IRS and mortgage lenders). You are no longer allowed to tell two different lies.

    What self-employed borrowers continually fail to understand is that lenders will consider the income on the tax return (with a few minor adjustments) as their actual economic income. If borrowers pursue an aggressive strategy to minimize their taxes, such as running fringe benefits through their corporation (generally legal) or deducting borderline personal expenses on their business return (obviously questionable), then borrowers are tied to the numbers on their tax return.

    The knife cuts both ways.

  11. deanscamaro says:


    If I could have quickly found a “thumbs up” avatar, I would have done it. All the whining about the tightening of mortgage application requirements is nothing but whining……it is what should have been and what should now be required.

  12. hondje says:


    It should have been, but because it wasn’t we find ourselves with a stalled housing sector. The longer it takes to clear all the excess inventory the harder it becomes to get things moving again. It’s much like the deficit: we should have saved during good times and splurged now to get things rocking. Just because we splurged during good times doesn’t obviate the need to get money moving now.

  13. If you save during the good times you usually don’t need to splurge

  14. Transor Z says:

    Some economists believe that having a pulse and fogging a mirror should be enough to qualify for a jumbo loan.

  15. timabbott34 has it exactly right.

    The pendulum hasn’t swung the other way, mortgages are ridiculously easy to get IF you have the income relative to the price you are buying. Many don’t, house prices are still too high. That is all it is. Pretty simple.

  16. Soylent Green Is People says:

    What’s missing is what the decline rates were during the late 1990′s. My guess is that the rate of rejection is similar. Why 1990′s data? That’s when prudent underwriting still existed. There is also likely a great deal of overlap in the data. Let’s say a Short Sale offer is rejected by the sellers bank. The loan is now declined. Is that the fault of the buyer?

    When FHA loans have debt to income ratios as high as 55% with as little as 3.5% down, mortgage are anything but hard to obtain.

    My .02c

    Soylent Green Is People

  17. BennyProfane says:

    Another thumbs up for timabbott34, but, really, the 26.8% number needs a lot of data backup. What is the average down payment these days? credit scores? length of loans? income to debt? We need a little more here. Maybe, maybe, it should be 58.6?

  18. BennyProfane says:

    And, ha, didn’t even notice this at first glance – Texas! Texas, one of the healthiest RE markets in the country, and such a high rejection rate. Was this the same rate in ’04, when one could get a 700,000 no money down in California if you could put an X on a sheet of paper? Oh, and, speaking of which, check out sunny California. By all rights, it should be almost impossible for the average indebted and under-employed schmoe to get a mortgage there. Not so, it seems.

  19. gchris says:

    What frustrates me is the comment “banks’ cautious lending practices are hampering the nascent housing market recovery”.

    The majority of mortgage applications in today’s environment are underwritten to FHA, VA, FannieMae, and FreddieMac guidelines, no matter who writes them. Very few go anywhere else. Yes, there are some overlays mostly specific to specific issues, but that’s minimal.

    Now, let’s see, who controls FHA, VA, Fannie and Freddie? Oh yeah, the government. Bernanke has even complained about too tight underwriting. And he could do something about it.

  20. DeDude says:

    Its like a hangover; yes you can drink it away. But if you overdo that approach, you will be sorry.

  21. DeDude says:

    It should be pretty obvious that the lose credit standards of 2003-07 were a disaster and should never be revisited again. Question is how far back towards the old standards of 20% “real savings” down payment do we want or need to move – and how fast do we need or want to move to a more sensible standard. Personally I think the main concern would be if we moved so fast to a tight standard that we sank house prices. Too much further decrease in house prices could have a serious negative impact on consumer wealth and spending.

  22. Jim67545 says:

    Another piece is the Private Mortgage Insurance (PMI) companies. They cut in half the percentages over 80% LTV that they would insure, boosted the credit scores and cut types of mortgages (such as second homes.) This threw higher LTV borrowers to FHA but left many as a decline – not by the originator but the PMI insurer which made it ineligible for sale to the GSEs.

    Incidentally, have you seen the stock performance of MTG, PMI, RAD?