Analysis: 1/3 of Declined Mortgage Applications Addressable with Homebuyer Assistance
Down Payment Resource, Atlanta, said its analysis of mortgage loan applications found nearly one-third of declined mortgage loan applications are both declined for reasons that can be addressed with homebuyer assistance and eligible for homebuyer assistance programs.
A large share of declined loan files were eligible for homebuyer assistance: 33% of all declined purchase mortgage loan applications were declined for either insufficient cash-to-close or disqualifying DTI ratios and also eligible for homebuyer assistance at the time of declination. The large share of loans potentially recoverable with homebuyer assistance highlights a significant, low-cost opportunity for lenders to increase purchase volume.
The report said declined loan applications were typically eligible for multiple programs. On average, declined loan applications were eligible for 10 homebuyer assistance programs, indicating there are often multiple options available to homebuyers financing with homebuyer assistance.
The analysis also found many declined loans could have been recovered with homebuyer assistance. Applying homebuyer assistance to eligible declined loan applications would have reduced LTV by an average of 5.85%, making many of the loan applications recoverable. Lowering LTV can open the door to better and more affordable first mortgage scenarios, including conventional (rather than FHA) financing, reduced mortgage insurance costs and better interest rates.
Findings were derived by analyzing HMDA data for tens of thousands of declined purchase mortgage loan applications representing $3.7 billion in volume furnished by mortgage lenders. Loan applications declined for either insufficient cash-to-close or disqualifying debt-to-income (DTI) ratios were categorized as potentially recoverable with homebuyer assistance. Homebuyer assistance eligibility for this group of applications was determined by running loan application data — including location, home price, loan amount, income and homeownership history — through the Down Payment Resource database. Matching assistance programs were then applied to each loan to determine how applying homebuyer assistance to eligible declined loan files would have impacted loan-to-value ratios.
“It is important for the mortgage industry to reflect on ways it can improve financing outcomes for homebuyers,” said DPR CEO Rob Chrane. “Homebuyer assistance programs are the most promising pathway to homeownership for a sizable share of the homebuyer population. Yet, homebuyer assistance programs are seldom offered as an option.
