Weekly Economic Update
Economic News:
Why Older Applicants Have a Higher Rejection Rate
Analysis shows why some older borrowers may struggle to secure financing.
Older Americans tend to have higher credit scores, but other factors can lead to denying an older client a mortgage loan, according to an analysis of the trend by MoneyWise. According to the data, refinance rejection rates average 17.5% — regardless of a borrower’s age. But when looking at the data for applicants in their 60s, the rate increases to more than 19%. For applicants in their 70s, the denial rate increases to 20%. Lenders typically want a credit score of 620 or above as part of a mortgage loan approval. Baby boomers have an average credit score of 742, according to data from Experian — but older adults also tend to have issues with regular income and asset holdings. “If you’re retired or close to retirement, your income may be lower than it was when you were working full time,” said Shashank Shekhar, CEO of InstaMortgage. “This can make it more difficult to qualify for a mortgage.” Economist Natee Amornsiripanitch said that “insufficient collateral” could account for as much as 50-70% of the mortgage application rejections. Older Americans may also have issues with equity, including whether the home that will be leveraged has been sufficiently maintained over the years. Seniors carrying mortgage debt into retirement could also be a factor in the new loan denials. Interestingly, Urban Institute research published in October 2021 showed that the likelihood of denial for a Home Equity Conversion Mortgage (HECM) increases if the applicant is on the younger side of the program’s age requirement. Still, older adults seeking mortgages have options to explore, according to Chris Birk, VP of mortgage insight and education for Veterans United Home Loans. “One tip is to look for lenders that understand the nuances of retirement-age income, which isn’t a one-size-fits-all calculation,” Birk told MoneyWise. Shekhar, on the other hand, recommends finding a co-borrower or co-signer with higher income to get over the qualification hump, or considering a reverse mortgage, since it is specifically designed to be used by older Americans. (Source: HousingWire)
FHA Launches New Language Resources
Multi-language translations of single-family mortgage documents designed to assist those with limited English proficiency.
The Federal Housing Administration (FHA) is taking steps to remove an important barrier to homeownership for those who have limited English proficiency by announcing the availability of multilingual educational materials on its new Language Access Resources web page. More than 40 single family homeownership documents and other educational resources are now available in Chinese, Korean, Spanish, Tagalog, and Vietnamese. These represent the first set of single-family homeownership document translations made available by FHA, to assist those for whom English may not be their primary language. The newly translated materials will facilitate lenders, servicers, housing counselors, and other FHA program participants working with those with limited English proficiency in explaining FHA single family mortgage programs, before prospective borrowers and existing homeowners execute legal mortgage documents in English, as required by law. (Source: FHA)
Real Estate News:
The Good Life
Fannie Mae survey: owning a home remains very important aspect of “the good life.”
Fannie Mae recently relaunched a series of survey questions – most recently asked in the fourth-quarter 2020 – about how consumers define “the good life.” The agency’s takeaway? Little has changed, and aspirations to homeownership remain high, despite rising interest rates and home prices. Between Q4 2020 and Q4 2022, the percent of consumers who cited owning a home as an important factor in “the good life” (defined by Fannie Mae as “the life they’d like to have”) remained flat, at 87% and at No. 6 on the respondents’ list. In a similar vein, 94% said living in a location they like was part of “the good life,” down a little bit from 96% in 2020. Topping the list was “being financially secure” and “being in good health,” both at 98%. One of the few notable changes over the past two years is related to the perception of renting vs. owning, per a perspective piece from Fannie Mae’s Kevin Tillmann, Market Research Senior Associate, National Housing Survey, and Steve Deggendorf, Market Research Senior Director.
Researchers asked respondents what benefits come from buying over renting a home. “Having less stress” brought up the rear at 66%, but still a 10-percentage-point jump from 2020. “It was particularly true among renters (60% in 2022 compared to 40% in 2020). One possible explanation is that many renters have experienced significant rent price increases and, despite declining home purchase affordability, view a fixed mortgage payment as less stressful,” Tillmann and Deggendorf said. “Another is that homeownership may be perceived as offering greater privacy and security than renting, a lifestyle benefit that may have proved especially desirable three years into a pandemic.” The top three concepts in which buying was viewed as preferable to renting were: control over what you do with your living space (94%); a sense of privacy and security (91%) and having a good place for your family/to raise children (90%). The study also broke down some demographics, finding a greater share of Hispanic renters (92%) consider homeownership to be important compared with Black renters (79%) and White renters (74%). (Source: The Mortgage Bankers Association)