Home Lending Drops to 1995 Level; Interest Rate Hits Record Low

Home Lending Drops to 1995 Level; Interest Rate Hits Record Low
September 24, 2012

Matthew Glans

Matthew Glans (mglans@heartland.org) joined the staff of The Heartland Institute in November 2007... (read full bio)

Home lending volume in the United States has dropped to levels not seen since 1995, according to the Federal Financial Institutions Examination Council.

The FFIEC released data in September showing the volume of home lending dropped 10 percent in 2011, with 7.1 million home loans made. Approximately 7.9 million home loans were made in 2010. The FFIEC consists of federal regulators including the Federal Reserve, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, and Consumer Financial Protection Bureau.

Their figures include loan activity for new mortgages, refinancings, and home improvement loans. The number of refinancings dropped 13 percent in 2011. Loans to purchase new homes fell 5 percent, according to the FFIEC.

Lenders Require Higher Scores

These regulators noted lenders have required higher credit scores to approve loans, up about 40 points since the end of 2006.

For 2011, the number of reporting institutions, 7,632, fell nearly 4 percent from the number in 2010, continuing a downward trend since 2006, when there were more than 8,900 lenders. The FFEIC said the decline reflects mergers, acquisitions, and the failure of some institutions. The 2011 data include information on 11.7 million home loan applications (of which nearly 7.1 million resulted in loan originations) and 2.9 million loan purchases.

Government Remains Major Player

The data reflect a continued heavy reliance on loans backed by the Federal Housing Administration (FHA) insurance that began four years ago with the bursting of the housing bubble and the start of the credit crisis. For home purchase lending, the FHA’s share of first-lien loans showed a continued increase from 7 percent in 2007 to 26 percent in 2008, and then to 37 and 36 percent, respectively, in 2009 and 2010. In 2011, the FHA share fell to 31 percent.

First-lien lending for home purchases backed by Veterans Administration (VA) guarantees also has increased in recent years, although VA-backed lending represents a smaller share of the market than FHA-backed lending. The VA market share of first-lien home purchase loans increased from nearly 3 percent in 2007 to about 7 percent in 2009 and 2010. The VA market share of home purchase lending increased to 8 percent in 2011.

One day after the FFIEC released its data, the Mortgage Bankers Association announced the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.72 percent, the lowest rate in the history of the MBA’s weekly loan application survey, from 3.75 percent, with points increasing to 0.45 from 0.44 (including the origination fee) for 80 percent loan-to-value ratio loans.

Internet Info

Federal Financial Institutions Examination Council Mortgage Lending Data: http://www.ffiec.gov/press/pr091812.htm

Matthew Glans

Matthew Glans (mglans@heartland.org) joined the staff of The Heartland Institute in November 2007... (read full bio)