Home Mortgage Lending

Homeownership is a key to building wealth. Rates of homeownership increased during the 1990s and into the early 2000s. The rate peaked at 69 percent in 2004. Since the housing market collapse and subsequent financial crisis, homeownership rate has been decreasing. As of the first quarter of 2020, the rate was 65.3 percent, according to the Census Bureau.

The amount of mortgage debt The amount of money owed by the government, which is the accumulation of all prior annual deficits. carried by homeowners age 50 and older has increased over the past three decades after accounting for inflation. It more than doubled from an average of $62,585 in 1989 (converted to 2019 dollars) to $160,112 in 2019. More concerning is the increase in mortgage debt The amount of money owed by the government, which is the accumulation of all prior annual deficits. of homeowners age 75 and older. Their average mortgage debt The amount of money owed by the government, which is the accumulation of all prior annual deficits. almost tripled from $30,409 in 1989 (converted to 2019 dollars) to $116,090 in 2019. Almost 28 percent of families headed by someone age 75 or older now carry mortgage debt The amount of money owed by the government, which is the accumulation of all prior annual deficits. .

Carrying mortgage debt The amount of money owed by the government, which is the accumulation of all prior annual deficits. at older ages can harm long-term financial security. This is especially the case for borrowers who can no longer afford their mortgage payments because their incomes decrease. When the housing market collapsed in 2007 and the Great RecessionA severe decline in economic activity that officially lasted from December 2007 to June 2009. hit in 2009, millions of loans went into foreclosure. An AARP study found that 1.5 million homes of people age 50 and older were lost due to foreclosure between 2007 and 2011. The economy has improved substantially since then. In April 2018, the national foreclosure rate fell to the pre-crisis level, according to CoreLogic.

However, the economy has entered a deep recession during the COVID-19 pandemic. Unemployment reached the highest level since the Great Depression. Foreclosure rates were expected to increase as a result of millions of jobs lost. Foreclosure rates were expected to be even hihger in states that experienced natural disasters such as hurricanes, flooding, or wildfires. Temporary forbearance and eviction moratoriums delayed foreclosures for many. However, once these temporary programs end, borrowers will need to begin repaying their mortgages and any unpaid obligations to avoid foreclosure.

Home prices have recovered in most areas since the Great RecessionA severe decline in economic activity that officially lasted from December 2007 to June 2009.. CoreLogic estimates that 3.4 percent or 1.8 million homes with residential mortgages have negative equity as of first quarter 2020. This compares with the peak of 26 percent of loans in the fourth quarter 2009. Home prices are expected to decrease in some areas as a result of the COVID-19 pandemic, but economists do not expect losses as severe as those experienced during the Great RecessionA severe decline in economic activity that officially lasted from December 2007 to June 2009..

Access to mortgage credit since the mortgage market crisis remains tight. Borrowers with low credit scores continue to have difficulty obtaining mortgage credit. According to the Urban Institute, the mean credit scoreAn estimate of a consumer’s creditworthiness based on borrowing history. Lenders use credit scores to evaluate the possible risk of extending credit. They are increasingly used by non-lenders, such as insurance companies. for new purchase mortgages increased 41 points since 2007. For borrowers in the lowest tenth percentile, the average credit scoreAn estimate of a consumer’s creditworthiness based on borrowing history. Lenders use credit scores to evaluate the possible risk of extending credit. They are increasingly used by non-lenders, such as insurance companies. increased 48 points. The impact of COVID-19 is expected to lead to further credit tightening. The government continues to play an important role in the mortgage market, with more than two-thirds of loans having some form of government guarantee. In first quarter 2020, Fannie Mae, Freddie Mac, Ginnie Mae, the Federal Housing Administration, and the Department of Veterans Affairs accounted for more than 70 percent of first-lien mortgage origination volume.

Dodd-Frank The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 is a federal law that overhauled the regulation of the financial markets and the securities industry in the wake of the financial crisis of 2008. The act created the Consumer Financial Protection Bureau (CFPB),… Mortgage provisions: The Dodd-Frank The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 is a federal law that overhauled the regulation of the financial markets and the securities industry in the wake of the financial crisis of 2008. The act created the Consumer Financial Protection Bureau (CFPB),… Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 is a federal law that overhauled the regulation of the financial markets and the securities industry in the wake of the financial crisis of 2008. The act created the Consumer Financial Protection Bureau (CFPB),…) included important mortgage provisions to protect consumers, the mortgage market, and the U.S. economy. Most important, lenders are required to evaluate whether the consumer can reasonably repay the mortgage. This determination must be based on a payment schedule that fully amortizes the loan. The creditor must document and verify the following information about the consumer:

• credit history;
• current and expected income;
• debt The amount of money owed by the government, which is the accumulation of all prior annual deficits. -to-income ratio;
• employment status; and
• other financial resources.

Dodd-Frank The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 is a federal law that overhauled the regulation of the financial markets and the securities industry in the wake of the financial crisis of 2008. The act created the Consumer Financial Protection Bureau (CFPB),… also requires counseling for high-cost mortgages. Such mortgages include those with negative amortization and high points and fees. And it limits prepayment penalties on all residential mortgages. Dodd-Frank The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 is a federal law that overhauled the regulation of the financial markets and the securities industry in the wake of the financial crisis of 2008. The act created the Consumer Financial Protection Bureau (CFPB),… also prohibits incentives to steer borrowers into higher-cost loans than they qualify for, among other protections. It also forbids financing a lump-sum premium payment for credit insuranceAn optional product that offers to make payments on a loan when a borrower becomes disabled or dies. Credit insurance is often expensive relative to the expected benefit. as part of a mortgage loan. And it prohibits pre-dispute mandatory binding arbitration provisions in loans secured by a borrower’s primary residence. The act also creates an incentive for lenders to refrain from making mortgage loans with onerous terms, negative amortization, surprise changes in required payments, or inadequate documentation. If they do not, they have to retain some risk in the loan. In addition to federal oversight, mortgage brokers are also subject to state regulation.

Bankruptcy treatment of foreclosure: The bankruptcy code forbids any modification of a mortgage loan secured by the debtor’s principal residence. However, loans on vacation homes, investment properties, and yachts may be modified (see also Bankruptcy).

Mortgage servicing: Mortgage servicers are companies that collect borrower payments and distribute them to lenders. They also handle customer service, loan modifications, collections, and foreclosure. The Consumer Financial Protection Bureau An independent federal regulatory agency within the Federal Reserve System that is responsible for ensuring consumer protection in the financial marketplace by administering federal financial consumer protection laws. has identified several problems in the mortgage servicing industry in conducting oversight. These include:

• failing to provide borrowers with the information needed to avoid foreclosure;
• starting the foreclosure process too early;
• mishandling escrow accounts, which are established to collect payments from borrowers for taxes and insurance; and
• providing incomplete account statements.

The Consumer Financial Protection Bureau An independent federal regulatory agency within the Federal Reserve System that is responsible for ensuring consumer protection in the financial marketplace by administering federal financial consumer protection laws. also found that the mortgage servicing industry needs to invest more money in mortgage compliance technology and training.