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Consumers who are discouraged to apply for a mortgage because of fear of rejection increased to 7.1% from 5.7% in October of 2016, according to the Federal Reserve Bank of New York’s February 2017 survey.
That means that more consumers are not looking for homes, or applying for refinancing because they believe they won’t get the mortgage. Not surprisingly, the share of homeowners considering a refinance decreased by about 4% from those planning to do so in October. This is the result of increasing rates and the fear of denials.
The good news is that actual rejection rates dropped in February by about 1.5% and slightly more applicants, about 1.3%, are considering a new mortgage loan. It appears the signals are mixed.
People want to buy or refinance homes but they fear rejection; when in fact fewer applicants are actually getting denied for their loans.
Once again, perception becomes reality. If consumers continue to believe they will be denied, for whatever reasons, they will not shop for a new home or refinance their existing one. That is not good for housing or lenders.
However, every cloud has its silver lining. Fewer consumers applying for loans will create a drop in demand. That drop could offsite the rise in rates and home prices, making more homes affordable. With more affordable housing some consumers may be coaxed off the sidelines.
It’s up to lenders to educate consumers that they have the products and services to get them qualified for the loans needed to purchase their share of the American Dream or refinance their existing property.
As this happens, lenders may need to expand the credit box to provide financing to more “harder to qualify” consumers. That’s okay as long as they use a common sense approach to loan approvals with an eye toward quality and compliance.
When they do; everybody wins.
