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Successful Homeowners Since 2009

Good news: those who bought homes in 2009 and later have become one of the most successful groups of homeowners. Mortgage default rates have been exceptionally low.

Bad news: the loan approval process has become so strict since 2009 that only super-high credit score individuals are able to obtain mortgages. A good chunk of middle-class borrowers have therefore been shut out of the market.

Is there any hard factual evidence to show that lending standards are just way too tight? Well, the Federal Reserve’s white paper, released last week, explicitly emphasized the need to ‘remove some of the obstacles preventing creditworthy borrowers from accessing mortgage credit’ in order to upgrade the economic growth prospects.

As for the data, consider the following loan performance by the vintage year after one year from the time of origination on Fannie and Freddie backed mortgages. Loan default rates were 0.3 to 0.4 percent in the more normal housing years of 2002 and 2003, well before the developments of a bubble. The default rates then rose to 2 and 3 percent in the immediate years of the bubble crash in 2007 and 2008. For those who took out loans in 2009 and 2010, the default rates came in at 0.1 and 0.2 percent after one year of seasoning – exceptionally low figures. The data for 2011 is not yet available, but several indications point towards possibly an even better loan performance than in 2009 and 2010. Though headline mortgage default news is driven by the souring loans from the bubble years, the default rates among recent borrowers have been at historic lows. Banks and the regulators need to understand this important distinction and permit more loans to flow into the market.

Lawrence Yun, PhD., Chief Economist and Senior Vice President

Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.

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Comments
  1. Can I simply say what a comfort to find someone that genuinely understands what they are talking about on the internet. You certainly realize how to bring an issue to light and make it important. More and more people should check this out and understand this side of the story. I hope i could be just like you guys, a successful homeowner with my family in the future. :)