Apr 08

4 Million Missing Mortgages, Study Says

4 Million Missing Mortgages, Study Says

4 Million Missing Mortgages, Study Says. Image courtesy of ponsulak / FreeDigitalPhotos.net

4 Million Missing Mortgages, Study Says. Image courtesy of ponsulak / FreeDigitalPhotos.net

Getting a mortgage was so difficult during 2009-2013 that millions of potential home buyers were shut out of the market. In fact, the Urban Institute has attempted to put a number on just how many potential buyers may have been shut out by tight credit standards. Its estimates: 4 million missing loans over the past five years due to lenders’ stringent underwriting and borrowers with less than perfect credit who were not able to qualify for a loan.

The Urban Institute estimates that the number of “missing” loans grew from 0.50 million to 1.25 million annually between 2009 and 2013. African American and Hispanic families have been particularly affected, the study says. In 2013, the strict credit standards in place resulted in 50 percent to 38 percent less in lending to African Americans and Hispanic borrowers. For comparison, the strict standards reduced lending to white borrowers by about 31 percent. It did not reduce lending to Asian families at all, according to the study.

Tight underwriting prompted a rise in cash sales during that time, the study authors note. “We believe the rise in cash sales share reflects both limited credit availability and more limited demand for home ownership,” the study suggests. The share of cash sales rose from 18 percent in December 2001 to 38 percent in 2013.

“A tight credit box has severe consequences,” according to the Urban Institute’s report, “The Impact of Tight Credit Standards on 2009-13 Lending.” “It means that fewer families will become home owners at an opportune point in the housing market cycle, depriving these families of a critical wealth-building opportunity. A tight credit box slows the housing market recovery by limiting the pool of potential borrowers. Ultimately, tight credit hinders the economy, as it slows all the associated economic activity that comes with home buying, such as furniture purchases, landscaping, and renovations.”

Source: “The Impact of Tight Credit Standards on 2009-13 Lending,” The Urban Institute (April 2015)          

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