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2011 Was the Worst Year in Mortgage Lending Since 1995

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While we’ve certainly been in a good news cycle for the past many months, it wasn’t long ago that things looked really bleak.

If you’re in the mood to reminisce, consider a new report from the Federal Reserve, which revealed that 2011 was the worst year in mortgage lending since 1995.

Per Home Mortgage Disclosure Act (HMDA) data dissected by the Fed, just 7.1 million loans were originated by the more than 7,600 lenders nationwide included in the report.

That was the lowest total since the 6.2 million home loans reported in 1995, which was nearly 20 years ago.

The numbers were down from about 7.9 million in 2010, with refinance loans (surprisingly) leading the decline.

Refinance volume surged late in 2011, but it wasn’t enough to keep the numbers above 2010 levels. Volume fell about 13 percent year-over-year.

Home purchases declined as well, thanks in part to the expiration of the first-time homebuyer tax credit program.

FHA lending also decreased from 2010, though the low-down payment loans continued to account for nearly half of the purchase-money mortgage market.

For the record, HMDA data is estimated to cover roughly 90 to 95 percent of FHA lending and between 75 and 85 percent of all other first mortgages, making it the broadest representation out there.

Overall, 11.7 million home loan applications were collected by reporting institutions in 2011, down roughly 10 percent from a year earlier.

Just before the mortgage crisis reared its ugly head, home loan applications peaked at a staggering 27.5 million back in 2006.

We all know what happened next…

Why the Numbers Are Down

It doesn’t take a genius to figure out why lending came to a stand still in 2011.

Once the excitement of the homebuyer tax credit waned, home prices continued their downward march.

As a result, more borrowers found themselves in an underwater position and foreclosures continued to rise.

Meanwhile, prospective homebuyers got back on the fence and decided to wait it out.

Of course, the 2012 numbers are sure to be much better, thanks to the silly low mortgage rates that have been on offer all year.

Since January, there has only been one week where interest rates on the 30-year fixed averaged more than 4%.

[The problem with mortgage rate surveys.]

So we’re sure to see some great numbers in next year’s report.

Still, many believe mortgage lending has been subdued, mainly because underwriting guidelines have become much more stringent.

69% of Mortgage Holders Still Have Rates Above 5%

New data from CoreLogic found that about 69% of homeowners had mortgages with interest rates of 5% or higher as of the end of the second quarter, per the LA Times.

And roughly 33% had rates above 6%, which is nearly double the going rate for a 30-year fixed nowadays.

If you look only at underwater homeowners, the numbers are even worse. In that unfortunate category, 84% had interest rates above 5%, and half of borrowers had rates above 6%.

Many of these borrowers aren’t able to take advantage of great programs like HARP II, which is only reserved for borrowers whose loan is owned by Fannie Mae and Freddie Mac.

For those with private-label mortgages, it’s either negotiate with your lender/servicer or simply be out of luck.

This explains why so many borrowers have given up on their mortgages. They’re paying an astronomical rate (compared to today’s rates) and they’ve got no home equity.

But it could be a lot worse. CoreLogic data revealed that 84.9% of borrowers with negative equity continue to make on-time mortgage payments, so thank goodness for that.

Perhaps this is why programs like Obama’s Broad Based Refinancing Plan and Oregon Senator Merkley’s “4% Mortgage: Rebuilding American Homeownership” haven’t come to fruition.

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