Mortgage lenders are denying more small loan applicants, hurting homebuyers: report

Lenders, who can't hit the margins they need on small mortgages, are choosing larger loan applicants
May 09, 2019 02:00PM

Small mortgages are increasingly hard to come by

Small mortgages are increasingly hard to come by

For an increasing number of lenders, small mortgages don’t pay.

The number of small home mortgages has decreased post-recession, as lenders have increased the number of loans on home purchases over $150,000, according to the Wall Street Journal.

Borrowers searching for smaller mortgages are being denied in part because mortgages typically have fixed costs, so lenders can’t make the profit they seek on smaller loans, the Journal reported.

Originations for loans below $70,000 have dropped the sharpest: 37.7 percent over the last decade. Meanwhile, mortgages between $70,000 and $150,000 have dropped about 26 percent.

But what a difference a higher loan makes.

Lenders provided 65 percent more loans over $150,000 last year than they did in 2009. Lenders are competitive for these loans because those borrowers often buy additional services with them.

Median values for homes under $70,000 haven’t completely recovered their pricing since the mortgage crisis a decade ago, so there are still plenty of homes available to lend on, report found. The value of higher-priced homes, meanwhile, have jumped.

The average rate on a 30-year fixed-rate mortgage rose steadily last year to a peak of just below 5 percent in November, prompting concerns of a slowdown across the housing market. Rates have since dropped back down.  The drop has enticed buyers and boosted stock performance for homebuilders and real estate investment trusts.

Fewer options for smaller mortgages has made it harder for Americans looking to buy homes in lower-cost markets in the Midwest and the South. That can have a long-term effect, preventing potential buyers from building home equity for the future. [WSJ]Dennis Lynch