Miami Leads Country in Mortgage Denials…But Is That Good or Bad?
A recent study delivered mixed news to South Floridians: Miami and its surrounding areas have the highest rate of mortgage application denials in the country. That can be seen both as good news, and bad news.
Miami Leads in Denials
Miami had the highest percentage of mortgage loan application denials of any other city, according to a study that used information from the Federal Home Mortgage Disclosure Act. According to the data, nearly 12% of all Miami mortgage applications are denied.
Just behind Miami were other Florida cities, including Orlando (11%), Tampa (9.5%) and Jacksonville (9.5%). The national rate of mortgage denials was found to be 9.8%, which means about 1 in every 10 borrowers gets denied.
The cities with the lowest denial rate (meaning that more people were approved for home loans) were Minneapolis, Salt Lake City and Kansas City.
Reasons for Denials
The reason for the majority of the denials in Miami was high debt to income ratios—people who did not have the income to justify paying for the loans they were trying to take out. Bad credit histories, lack of assets, and the failure of property to appraise at the selling price were other reasons why people were denied mortgages.
In some cases, errors by borrowers, such as failing to provide documentation of stated income, lead to the denials.
Good News or Bad?
The study is good and bad news. Certainly, people who need credit should be given access to it, and the promise of owning property should be attainable by as many people as possible. Nobody wants to be denied a loan, or told that they can’t buy the home that they want.
However, the mortgage crisis of the late 2000s was in large part caused by people being given loans that they could not afford to pay back. Many were deceived with “loan products” that provided affordable payments at first, only to adjust later on. When they did adjust, many borrowers did not have the money to pay the monthly payment.
In some cases, borrowers’ incomes were adjusted by mortgage brokers in efforts to qualify them for bigger loans than they could afford to pay back, often without the borrowers’ knowledge. Borrowers’ stated incomes were often undocumented or unverified by mortgage brokers and lenders, anxious just to close the deal and move on to the next one.
Denials of credit are not a good thing, but it may mean that people are not being taken advantage of by being offered subprime loans, or exotic loan products.
This may be due to changes in federal regulations, which required banks to do tougher and more thorough verification of borrower income before giving loans–but it may also come from an awareness that we do not want what happened in the late 2000s, to happen again.
Do you have questions about foreclosure? Contact Jacobs Legal to speak with one of our Miami consumer rights attorneys today.