2 types of mortgage approvals hurt by bank crisis & inflation fight

Digital Risk chief and MBA board member Jeff Taylor shared a few key notes with CNBC on how 2023 bank strain and the Fed’s inflation fight is impacting mortgage loan approvals. Here are a few key takeaways:

– It’s mostly business as usual for lenders making mortgages that qualify for Fannie Mae and Freddie Mac backing.

– And Fannie/Freddie cover a huge part of the market.

– They buy loans up to $726,200 nationally. And in certain high priced areas they buy loans up to $1,089,300.

– This covers most of the U.S. market where median existing and new home prices are $363,000 and $438,200, respectively.

– This means lenders can make these loans, then sell them to Fannie and Freddie to get them off their balance sheets.

– Doing so lets lenders make new loans more and faster.

– Hence ‘business as usual’ for this big part of the mortgage market.

– But there are still 2 types of loans that mostly sit on bank balance sheets that aren’t business as usual right now.

– (1) Jumbo mortgages above the $726,200 limit.

– (2) Home equity line of credit (HELOC) loans made to borrowers who want to tap home equity.

– These loans mostly sit on bank balance sheets.

– And while banks are preserving capital now, they’re tightening standards on approving these two mortgage types.

– Jeff thinks this will go on for the next 3-6 months while the marketplace assesses bank stability and liquidity.

– In this video, Jeff also talks about how rent prices impact inflation.

– He also talks about home affordability and how a household making $97k can afford a median priced home right now with 5% down.

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Reference:

– Jeff Taylor on CNBC with home affordability & state of bank loan approvals