Tight Mortgage Credit Weighs on Consumers

Tight credit restrictions can prevent consumers from getting a mortgage and making a home purchase. But over time, tight credit can impact a consumer’s expectations of the mortgage application process, reducing their willingness to even apply for a mortgage or to start the home search process.

In a report released this week [1], researchers at the Federal Reserve Bank of New York provided estimates of the change in applications for mortgages in February of 2014 as compared to May of 2013. Their estimates indicate that:

  • Applications for mortgages fell sharply over this period for consumers in all FICO brackets.
  • The uniform impact is likely due to the nearly 80 basis point increase in mortgage rates over this time frame.
  • The mortgage application rejection rate fell for all groups except those with FICOs below 680.


When surveyed in February about their plans to apply for a mortgage over the next 12 months:

  • Borrowers with FICOs below 680 indicated a drop in plans to apply for a mortgage in the next 12 months by 6%, roughly 6 times the decline among borrowers with FICOs greater than 760, while plans to apply for mortgages by borrowers with FICOs between 680 and 760 increased roughly 7%.
  • Pessimism among borrowers with FICO scores below 680 increased as respondents who expected to apply for a mortgage also expected an increase in the 6% rejection rate.
  • All other groups expected a decline in rejections.


In recent weeks, some lenders have indicated a willingness to return to traditional, well-underwritten lending in the lower FICO spectrum. However, these efforts may be in vain without a more fundamental recognition from consumers. Lenders may need to trumpet these efforts in order to draw well-qualified, but discouraged, potential homeowners back into the market.

[1] http://libertystreeteconomics.newyorkfed.org/2014/05/rising-household-debt-increasing-demand-or-increasing-supply.html

Ken Fears, Director, Regional Economics and Housing Finance

Ken Fears is the Manager of Regional Economics and Housing Finance Policy. He focuses on regional and local market trends found in the Local Market Reports and the Market Watch Reports . He also writes on developments in the mortgage industry and foreclosures.

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  1. Something needs to give right now. Here in NY State, we are experiencing a very strange market for the normal selling season. Buyers seem to have albeit disappeared.

  2. Before demonizing lenders: I wouldn’t RENT an apartment to someone with a credit score of 680 or below (720 actually), never mind give them a six-figure loan. (credibility? credible?). The phony gains of ’02-’07 were rolled back in ’08 by the lack of lending and horrific job market, which partly was due to jobs related to housing eroding away. No $, no sales. The constraints have since been removed and supply and demand has been the norm for over two years. I can sense when buyers sulk en masse, it’s hilarious. I haven’t had even one client turned down for a home loan based on credit worthiness, ever.

  3. Hilary M

    Wow, John Campbell, you sure liberally painted EVERYONE with a lower FICO with the same brush and label. THIS is what’s wrong with our world today. And just where do you think those ‘deaadbeats’ are going to be able to live, with more of your kind of thinking around? I guess you don’t care. And to belittle future customers by your ‘sulk’ comment sure shows your true colors.