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Widespread refis ignited housing problems

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Mortgage refinance activity may have been the true hidden culprit behind the housing crisis, according to a new report by the Urban Institute (UI) written by Laurie Goodman, co-director of UI’s Housing Finance Policy Center.

 

Widespread refis ignited housing problems

Widespread refis ignited housing problems

Mortgage refinancers were more prone to default than mortgages taken out to obtain a home “mostly because many people were treating their homes as ATMs through cash-out refinances,” Goodman says.

Eighty-four percent of government-sponsored enterprise (Fannie Mae and Freddie Mac) refinances in 2006 and 2007 were cash-out refinances. These types of refinances at that time tended to have “sloppier underwriting” and therefore tended to default more than purchase loans, Goodman says.

The analysis notes that between 1999 and 2015, 4.48 percent of refis and 3.3 % of purchase loans were more than 180 days delinquent. In 2007, the peak year, 15.78 percent of refis and 9.95 % of purchase loans were over 180 days delinquent.

“Conventional wisdom suggests that refis should be less risky than purchase loans and default less because the borrowers have a known history of payment,” Goodman says. “So these results are surprising, especially given the stronger credit characteristics of refis, such as lower loan-to-value and debt-to-income ratios.”

Many housing experts blamed government policies geared towards increasing first-time home-buyers for spawning the housing crisis. However the new report reveals that “although there is a lot of blame to go around for the poor quality of loans before the housing crisis, the data reaffirms that purchase borrowers were not the primary culprits,” Goodman writes.

With interest rates as low as they have been why would you not opt for a new home? If you are ready to find your new home? Nick & Cindy Davis with RE/MAX Premier Group are here to assist you. We are always just a click here or call to 813-300-7116 away.

 

 

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Source: “Using Homes as ATMs, Not Homebuying Fervor, Was More to Blame for the Housing Crisis,” Urban Institute (May 11, 2017)