Lending in 2007...we knew it was bad, but why?

Well, we knew it was tough to get a loan in 2007...hopefully that will change some in the next couple of years, but here is why 07 was so hard...some of this we have seen thus far in 2008, but it does seem to be getting better. Let us know your feedback on our Forum Section of InvestSmarter.com so we can see if our investors and friends are experiencing the same things.

Daily Real Estate News September 12, 2008
Report: Getting a Loan Tough in 2007

Mortgage lending fell sharply in 2007 because lenders denied nearly one-third of loan applications, according to a report by the Federal Reserve.

Minorities were most affected. The number of mortgage loans made to Hispanic borrowers fell 49 percent and the number to African-American borrowers declined 35 percent between the first half of 2006 and the second half of 2007. The number of loans to white borrowers also declined by 22 percent during the same time period.

Black and Hispanic borrowers were more likely to receive high-rate loans. In the second half of 2007, 29.5 percent of first-lien home-purchase loans to African-Americans and 24.3 percent of such loans made to Hispanics exceeded the high-rate threshold, compared with 9.2 percent for non-Hispanic whites. (The figures exclude government-backed loans.)

The following are the main reasons given for loan denials in 2007, according to Fed researchers. (The analysis excludes investment properties and home-equity loans. The percentages add up to more than 100 percent.)

Credit history, 30.25 percent
Not enough collateral, 23.4 percent
Other, 23.3 percent
Debt-to-income ratio, 20.7 percent
Credit application incomplete, 14.2 percent
Unverifiable information, 8.4 percent
Insufficient cash, 3.8 percent
Employment history, 2 percent
Mortgage insurance denied, 0.2 percent

Source: The Wall Street Journal, Ruth Simon and Tom McGinty (09/12/08)

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