By Mike Colpitts
Only about half of all homeowners would qualify to buy a new mortgage under current more restrictive mortgage lending guidelines. In the U.S. 54% of homeowners with a mortgage would qualify to put 20% down from the sale of their present home, according to Core Logic, which researches the mortgage industry.
The bulk of homeowners would have difficulty selling their homes in the current economic environment, despite efforts being forwarded by the Dodd-Frank Wall Street and Consumer Protection Act, which exempts lenders from risk retention requirements for mortgages to be securitized. The move is intended to make loans cheaper to originate and stimulate more mortgage lending.
Requiring higher down payments is the lending industry’s way of handling the mortgage crisis after bankers developed new mortgages to sell a home loan to anyone who could sign their name, including “Liar Loans” and adjustable rate mortgages with five payment options to choose from. Those mortgages now make up the highest number of foreclosures, which are projected to top last year’s number of repossessions in 2011.
“The share of loans in foreclosure in California and Florida combined was 36% (in the fourth quarter of 2010), a decrease from 37.3% in the third quarter,” said Mortgage Bankers Association vice president for single family research Mike Fratantoni. “Over 24% of the loans in Florida are one payment or more past due or in the process of foreclosure, the highest rate in the nation, followed by Nevada at over 22% compared to an average of 13.6% for the nation.”
States like hard hit Florida, Nevada and California have a lower proportion of borrowers that qualify and will be more adversely affected since homeowners lack equity in their homes for sufficient down payments under the new guidelines most banks and mortgage lending institutions are requiring.
Other hard hit states include Georgia, Colorado, Arizona and Nevada, which are among the 15 states targeted by the Obama administration’s Hardest Hit Fund to aid mortgage holders at risk of losing their homes to foreclosure. With home prices forecast to decline in all but the best of housing markets in 2011, negative equity is projected to take a further toll on home values.
However, local housing markets in North Dakota, South Dakota, Iowa, Nebraska and a handful of other states are expected to increase in value during the year as U.S. residents move to the Northern region of the U.S. in larger numbers for jobs. Low consumer confidence, stricter lending criteria and troubles surrounding the implementation of the government’s housing rescue plan contribute to slow mortgage lending.