LendingTree: U.S. mortgage denials are now at lowest level since financial crisis

Investing

The nation’s low-interest-rate environment has spurred an increase in borrowing demand, as mortgage rates, which came in at 3.57% last week, continue to hover near historic lows.

As demand climbs, LendingTree, an online lending marketplace, has conducted a study to determine how many borrowers are successful during the application process.

To
do so, the company delved into data
from more than 10 million mortgage applications using the most recent HMDA data
available for 2018.

According
to their findings, nearly 1 in 10 mortgage borrowers were denied during the
application process. On a national level, this means only 9.8% of loan applications
were denied in 2018.

LendingTree
says purchase mortgage denials are now at the lowest level since the financial
crisis — and
the lowest since at least 2004.

Tendayi
Kapfidze, LendingTree’s chief mortgage economist, said most reasons for application
denial are financial, but some are not borrower-specific, such as concerns
about the collateral.

“The
low denial rate is encouraging, though some of this is because the financial
profile of mortgage applicants has improved. The key for homebuyers is to be
well-educated on the homebuying and mortgage process,” Kapfidze said.
“Understanding the key reasons mortgages are denied can help borrowers avoid
missteps and compete effectively to secure their dream home.”

LendingTree’s
study determined that debt and credit history were the biggest barriers to being
approved for a loan. In fact, debt-to-income and credit history represented 33%
and 23% of denied loans, respectively.

Additionally, collateral was the third-highest denial reason at 17%,
followed by Incomplete applications at 13% and
unverifiable information at 8%.

Overall the report suggests that
denials varied on race, ethnicity and even geographical locations.

According to the report, African-American
borrowers now have the highest denial rates at 17.4%, and Non-Hispanic whites
have the lowest at 7.9%.

The image below highlights the housing markets with the
lowest mortgage denial rates:

(Click to enlarge; courtesy of LendingTree)

Note: LendingTree analyzed more than 10 million mortgage application records from the Federal Financial Institutions Examination Council’s Home Mortgage Disclosure Act 2018 data set, the most recent available. The data represents mortgage applications from over 5,000 financial institutions.