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How Last Year’s Housing Bust Impacted This Year’s Mortgages

by Natalie Terchek

mortgages

Banks made more mortgages last year than in any year since the housing downturn in 2000.

According to The Wall Street Journal, banks made more mortgages last year than in any year since the housing downturn in 2000, with interest rates reaching their lowest levels on record.

Researchers at the Federal Reserve analyzed the federal lending data, and learned that the number of mortgages made in 2012 increased by 38 percent, most of which came from refinancing.  The number of loans made to people actually buying homes increased by 13 percent. Refinancing got a big boost from low mortgage rates and from new federal programs.

Borrowers Pay Off Mortgages Easier, Despite Rate Increase

Mortgage rates have been increasing since May, and researchers have determined that borrowers are having problems making down payments. Even though the share of FHA borrowers with incomes above $100,000 has nearly doubled since 2007, to around 15 percent, the median incomes of FHA borrowers was still 40 percent lower than those taking out conventional loans. According to a Redfin report at the beginning of this year, 56 percent of respondents said their ability to buy their preferred home was somewhat affected by the higher rates.

However, higher mortgage rates do not necessarily mean the market is in bad shape. Trulia’s Jeff Kolko mentioned that for the past decade and a half, mortgage rates grew higher when the economy was doing better. And despite the increase in mortgage rates, borrowers are displaying more signs of responsibility. Average credit scores rose from 701 to 728 for home-purchase loans between 2006 and 2010. And for conventional home-purchase mortgages made in 2010, just 0.5 percent of loans had missed two or more payments within their first two years.

It is easier for borrowers to keep up with their mortgage payments because of the Qualified Mortgage (QM) rule that was enforced in January, in which banks could face additional liability if they don’t properly ensure borrowers have the ability to repay a loan. The rule states that borrowers can’t have total debts that exceed 43 percent of their monthly income, though the cutoff doesn’t apply to loans which are sold to federally related entities.

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