U.S. Banks Tighten Loose Lending
By David Andrews
Recently released data provided by the Federal Home Financing Board (FHFB) reveals that homeowners are putting large down payments to purchase a home. The percentage of all conventional mortgage loans with less than a ten percent down payment dropped dramatically in 2008. From 29 percent of all loans in January, the percentage of loans with low down payments fell to only nine percent in December 2008. (See Chart).
Low down payment loans accounted for one-third (33 percent) of all conventional loans in December 2007. This figure dropped to one-quarter (25 percent) of all loans in March 2008, the month when Bear Stearns, which was the first major casualty in the sub-prime mortgage crisis, collapsed. With the relatively high risk of falling home prices, mortgage lenders became more cautious over the summer. The percentage of loans financed by less than ten down payments fell to 13 percent in September 2008, the month when Lehman Brothers filed for bankruptcy.
Banks further tightened their lending standards during the autumn by requiring larger down payments by borrowers. In October, the U.S. Congress passed the $700 billion Emergency Economic Stabilization Act of 2008. The U.S. Treasury Department began buying stock in the nation’s largest banks. Using funds from the first half of the revised Troubled Asset Relief Program (TARP), the Treasury bought preferred stock and warrants and quickly capitalized lenders.
Many mortgage lenders had suffered unrealized losses because of the sub-prime mortgage crisis. By December 2008, only nine percent of all conventional home mortgages were made to borrowers who had put down less than ten percent toward the purchase price of their single-family homes.
As the percentage of mortgage borrowers who put low down payments fell during 2008, the percentage of single family home purchasers who put larger down payments increased. In December 2008, nearly half (49 percent) of all purchasers had a down payment of between 20 and 30 percent, up from the approximately one-third (35 percent) of all borrowers in January. The figures are for 30-year, fixed-rate, conventional mortgages of less than $417,000. Similar patterns held for loans for both new and previously occupied homes by all major lenders.
Long-term mortgage interest rates, meanwhile, stayed relatively stable for most of 2008, despite a sharp drop in short-term rates. In December 2007, the target for short-term, Federal Funds rate stood at 4.25 percent. The Federal Open Market Committee (FOMC) lowered its target rate for the Federal Funds rate to between zero and one-quarter percent in mid-December 2008. Meanwhile, thirty-year, fixed rates for conventional mortgages by all major lenders rose from 5.96 percent in January to 6.42 percent in August, before falling to 5.52 percent in December. The data on interest rates reflects reporting by savings associations, mortgage companies, commercial banks, and mutual savings banks to the Federal Housing Finance Agency (FHFA). A further small drop in long-term, fixed rate, mortgage interest rates is expected in January.
Sources: Federal Housing Finance Agency, Federal Home Finance Board (http://www.fhfb.gov/).
U.S. Banks Tighten Loose Lending in 2008
The percentage of borrowers putting down payments of less than ten percent dropped dramatically in 2008.
Check out the original article at AC:
http://www.associatedcontent.com/article/1479348/banks_tighten_loose_lending.html
By David Andrews
Recently released data provided by the Federal Home Financing Board (FHFB) reveals that homeowners are putting large down payments to purchase a home. The percentage of all conventional mortgage loans with less than a ten percent down payment dropped dramatically in 2008. From 29 percent of all loans in January, the percentage of loans with low down payments fell to only nine percent in December 2008. (See Chart).
Low down payment loans accounted for one-third (33 percent) of all conventional loans in December 2007. This figure dropped to one-quarter (25 percent) of all loans in March 2008, the month when Bear Stearns, which was the first major casualty in the sub-prime mortgage crisis, collapsed. With the relatively high risk of falling home prices, mortgage lenders became more cautious over the summer. The percentage of loans financed by less than ten down payments fell to 13 percent in September 2008, the month when Lehman Brothers filed for bankruptcy.
Banks further tightened their lending standards during the autumn by requiring larger down payments by borrowers. In October, the U.S. Congress passed the $700 billion Emergency Economic Stabilization Act of 2008. The U.S. Treasury Department began buying stock in the nation’s largest banks. Using funds from the first half of the revised Troubled Asset Relief Program (TARP), the Treasury bought preferred stock and warrants and quickly capitalized lenders.
Many mortgage lenders had suffered unrealized losses because of the sub-prime mortgage crisis. By December 2008, only nine percent of all conventional home mortgages were made to borrowers who had put down less than ten percent toward the purchase price of their single-family homes.
As the percentage of mortgage borrowers who put low down payments fell during 2008, the percentage of single family home purchasers who put larger down payments increased. In December 2008, nearly half (49 percent) of all purchasers had a down payment of between 20 and 30 percent, up from the approximately one-third (35 percent) of all borrowers in January. The figures are for 30-year, fixed-rate, conventional mortgages of less than $417,000. Similar patterns held for loans for both new and previously occupied homes by all major lenders.
Long-term mortgage interest rates, meanwhile, stayed relatively stable for most of 2008, despite a sharp drop in short-term rates. In December 2007, the target for short-term, Federal Funds rate stood at 4.25 percent. The Federal Open Market Committee (FOMC) lowered its target rate for the Federal Funds rate to between zero and one-quarter percent in mid-December 2008. Meanwhile, thirty-year, fixed rates for conventional mortgages by all major lenders rose from 5.96 percent in January to 6.42 percent in August, before falling to 5.52 percent in December. The data on interest rates reflects reporting by savings associations, mortgage companies, commercial banks, and mutual savings banks to the Federal Housing Finance Agency (FHFA). A further small drop in long-term, fixed rate, mortgage interest rates is expected in January.
Sources: Federal Housing Finance Agency, Federal Home Finance Board (http://www.fhfb.gov/).
U.S. Banks Tighten Loose Lending in 2008
The percentage of borrowers putting down payments of less than ten percent dropped dramatically in 2008.
Check out the original article at AC:
http://www.associatedcontent.com/article/1479348/banks_tighten_loose_lending.html
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