The U.S. economic recovery is being endangered by a slowing housing market, as prospective homeowners with lower incomes and credit scores are finding it nearly impossible to get a mortgage.
Six years after the collapse of home prices, the mortgage-lending industry is going through an upheaval. Wells Fargo & Co. WFC, +0.16% has the largest share of the mortgage market, but CEO John Stumpf in an interview with the Financial Times last week said his company would be unwilling to lend to lower-income borrowers and those with relatively low credit scores. That is, unless regulators made it more difficult for investors to force banks to repurchase securitized loans.
“If you guys want to stick with this program of ‘putting back’ any time, any way, whatever, that’s fine, we’re just not going to make those loans and there’s going to be a whole bunch of Americans that are underserved in the mortgage market,” Stumpf said.
J.P. Morgan Chase & Co. JPM, +0.33% CEO James Dimon, during a July conference call, said the bank’s volume of loans insured by the Federal Housing Administration was “way down,” and that the bank had “lost a tremendous sum of money on the FHA,” which had disputed roughly a third of all insurance claims.
“We want to help the consumers there, but we can’t do it at great risk to J.P. Morgan, so until they come up with some kind of safe harbors or something, we’re going to be very, very cautious in that line of business,” Dimon said.
Even Federal Reserve Chairwoman Janet Yellen said in June: “It is difficult for any homeowner who doesn’t have pristine credit these days to get a mortgage,” which was one of the causes of the limp housing recovery.
The pace of home-price increases has slowed for the first time since 2008, according to the latest data from Case-Shiller released last week.
Hovnanian Enterprises Inc. HOV, +0.71% which builds homes in planned communities, said today that for its fiscal third quarter ended July 31, net contracts for new homes declined 6.3% from a year earlier, and its cancellation rate increased to 22% from 18%. CEO Ara Hovnanian said “the housing industry remains in the early stages of a recovery,” which is a remarkable statement, considering how many years have passed since the financial crisis.
Mortgage lending is slowing as well. The Mortgage Bankers Association forecasts a 74% decline in mortgage originations this year to $1 trillion, with a 61% drop in refinancing volume to $431 billion.