A new survey of mortgage brokers reveals that one in three prospective home buyers who had signed purchase and sale agreements in August ended up cancelling.
August was a turbulent month for mortgage lenders, as many investors stopped buying securities backed by home loans because of fears of rising delinquencies and defaults.
Not all of the cancellations reported in the survey of 1,744 mortgage brokers by Campbell Communications Inc. were the result of problems funding loans.
Some deals fell through because buyers could not get approved for a loan or withdrew their offer. In other cases the lender did not honor a loan commitment, went bankrupt or stopped funding loans. Interest-rate changes killed some deals, and sellers backed out of others.
Detailed breakdowns of the reasons purchase agreements were cancelled are available only to those who purchase the survey from Campbell Communications.
But survey designer Thomas Popik of Geosegment Systems did say mortgage brokers reported that about one-third of all subprime mortgage applications — both purchase and refinance — were declined in August. A “much lower” percentage of prime conforming and prime jumbo loans were turned down, Popik said.
Popik said 56 percent of subprime borrowers who had signed purchase and sale agreements in August saw those deals fall through for various reasons, compared with a cancellation rate of 21 percent for prime borrowers.
“In general, what’s happening in the marketplace is the subprime borrowers are having trouble getting approved, and the prime borrowers are holding back from the transactions, perhaps because they think they might get a slightly better deal later on,” Popik said.
When Campbell Communications surveyed real estate agents in 2004 — when the housing boom was in full swing — only 4 percent of home purchase closings failed for mortgage-related reasons.
While 33 percent of prospective buyers saw their closings fall through in August, “the flip side is that most people who had planned on buying a new home … were still able to close on those transactions,” Popik said. “Whether that situation will persist through the fall and into next year is another question entirely.”
A more troubling statistic, perhaps, was the survey’s finding that 57 percent of borrowers facing interest-rate resets on their adjustable-rate mortgages (ARM) were unable to refinance. That could push up delinquencies and defaults if those borrowers are unable to manage higher monthly payments.
The problem was more acute for subprime ARM borrowers — 64 percent were unable to refinance. But 50 percent of those seeking prime conforming mortgages were also unable to move into new loans, the survey found.
The most common issues for subprime borrowers seeking to refinance were the lack of subprime loan programs, and FICO scores that excluded them from other programs, the survey found. Prime borrowers found property appraisals and loan-to-value (LTV) ratios were impediments to refinancing.
Mortgage brokers surveyed said LTVs for prime jumbo loans had tightened substantially, averaging 90 percent, with the minimum acceptable FICO score averaging 679.
Loan production was down 20 percent in August for prime conforming loans and 50 percent for Alt-A loans, the survey found. One-third of mortgage brokers said their most frequently used subprime lenders were no longer accepting applications or funding loans in August, and that 15 percent of jumbo lenders had taken similar steps. Some 20 percent of commitments to fund subprime loans were not met during August, the survey found.
Asked who they were most likely to work with in the future, mortgage brokers named Countrywide Financial Corp. as the lender of choice for prime loans, and Merrill Lynch’s First Franklin subsidiary for subprime loans.
Popik said that retail mortgage lenders like bank loan officers were not included in the survey, but mortgage brokers originate between one-third and 60 percent of all home loans, with a heavier concentration in subprime and Alt-A loans.
“We looked at mortgage brokers because they deal with multiple lenders, and have their fingers on the pulse of the marketplace,” Popik said.
Cambpell Communications will release the results of a survey of correspondent lenders in about a week, Popik said, covering the month of September, Popik said.
