Home Price Declines, Tight Lending Standards Blocked 2.3M Refinances - Fed Study

Home Price Declines, Tight Lending Standards Blocked 2.3M Refinances - Fed Study
By Alan Zibel

Published September 22, 2011

|WASHINGTON -(Dow Jones)- Tight mortgage-lending standards and dramatic declines in home prices prevented more than two million U.S. homeowners from refinancing last year, the Federal Reserve said Thursday in a new study.

The annual report underscores the difficulties that policymakers have had over the past two years in encouraging more Americans to refinance their mortgages and take advantage of ultra-low rates.

The report found that about 2.3 million homeowners would have been able to refinance their loans were it not for strict underwriting standards enacted after the housing bubble burst, and for home price declines that left millions of Americans owing more on their properties than their homes are worth. About 4.5 million of refinances were made last year, the study said.

The report analyzed data from more than 7,900 mortgage lenders, which are required to report detailed data on mortgage lending to the Fed and other regulators under the Home Mortgage Disclosure Act. In total, 7.9 million home mortgages--including refinances, home purchases and other loans--were made last year by the institutions analyzed in the report. That was down from 9 million in 2009 and a peak of 15.6 million in 2005.

The White House in 2009 launched an initiative called the Home Affordable Refinance Program that allows borrowers whose properties have declined in value to refinance without putting down more cash. It has enrolled about 830,000 homeowners, far fewer than expected. The Obama administration and regulators have been working on ways to expand access to that program.

The report comes as maximum size of loans that can be backed by government-controlled mortgage companies Fannie Mae (FNMA), Freddie Mac (FMCC) and the Federal Housing Administration is scheduled to decline at the end of the month. The new limits vary by location, but will drop to $625,500 in expensive markets such as New York, Los Angeles and Washington from the current $729,750.

The Fed study concluded that only a small number of loans are likely to be impacted by this change. It calculated that only about 1.3% of purchase and refinance loans guaranteed by Fannie and Freddie made last year would have been impacted had those lower limits been in effect.

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