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These Types Of Mortgage Loans Get Denied The Most

October 20th, 2018 12:17 PM by Jackie A. Graves

Don’t want to get that mortgage denied? According to new data, you might want to avoid conventional loansand small-dollar onesespecially if you have less than perfect credit.

The Urban Institute recently calculated Real Denial Rates (RDRs)the rates at which consumers with lower credit scores have been denied a mortgage, across several loan types.

Conventional loans showed significantly higher denial rates than government-backed loans (like FHA mortgages, for instance). According to the findings, conventional loan applications are denied almost 50% of the time, versus just over 20% for government loans.

According to Tendayi Kapfidze, chief economist at LendingTree, this is likely due to the higher requirements of these loans.

“The conventional market has stricter lending standards than the government-backed market,” Kapfidze said. “As such, if the applicant pool were the same, the conventional market would have a higher observed denial rate. Consumers accurately judge this, thus lower credit borrowers self-select into the government market, which boosts their odds of approval.”

Smaller balance loans, particularly those at $70,000 or lower, also see much higher denial rates, especially in the government channel. Applications for loans under the $70,000 mark had a 52% denial rate, while those for over $150,000 were denied just 29% of the time.

According to Kapfidze, there’s less for lenders to gain on these small-dollar mortgages, making them choosier in which applicants they approve.

“Low balance loans have thinner profit margins because the fixed costs of origination are similar regardless of loan size,” he said. “Thus, losses on low dollar loans quickly eat into the margin, making lenders more conservative when underwriting these loans, boosting the denial rates.”

Overall, the Real Denial Rate across all loan types was 36% from 2011 to 2017right on par with the 37% seen before the housing crisis, indicating a solid availability of mortgage credit. In fact, according to the Mortgage Bankers Association, credit availability is currently at historical highs.

Source: To view the original article click here

Posted by Jackie A. Graves on October 20th, 2018 12:17 PM


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