Homebuyers with bad credit increasingly locked out of the market

Despite surging supply of mortgage bonds and historically low rates, some Americans are struggling to qualify for home loans

While some Americans have benefited from low mortgage rates, others find themselves locked out (iStock)
While some Americans have benefited from low mortgage rates, others find themselves locked out (iStock)

Not everyone is reaping the benefits of a low-mortgage rate environment.

As mortgage lenders tighten their belts, available housing credit has hit the lowest level since February 2014, leaving hopeful homebuyers with poor credit scores struggling to qualify for loans, Bloomberg News reports.

The Mortgage Bankers Association’s index tracking available housing credit monthly has fallen eight of the nine months this year. The index is down 35 percent year-over-year.

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One of the starkest examples is the tightening measures taken by Ginnie Mae, which guarantees loans predominantly for lower-income borrowers and first-time homebuyers.

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In January 2019, 44 percent of Ginnie Mae’s purchase loans were issued to borrowers with FICO scores below 700 and debt-to-income ratios over 40 percent. This January, that number fell to 38 percent and by August it had slipped to 36 percent.

For Ginnie Mae’s refinance loans for borrowers of that same profile, the agency cut the number of loans from 38.5 percent in January 2019 to 12.8 percent this January. In August, those borrowers represented just 5 percent of Ginnie Mae’s refinance loans.

Ginnie Mae’s tightening up has meant its issuance of mortgage bonds has dropped by $3 billion, year-to-date, compared to the previous five years, according to Bloomberg News.

Meanwhile, the mortgage market overall is humming for borrowers with good credit, who’ve rushed to take advantage of low rates to buy or refinance. The supply of mortgage bonds is set to reach its highest level since 2003 this year with $2.8 trillion in gross issuance.

[Bloomberg] — Erin Hudson