Mortgage lending has sunk to its lowest level in 14 years for the first quarter, reports the Wall Street Journal. Homeowners have stopped looking for refinancing options and there has been little demand for new loans, with experts citing rising interest rates as the culprit.
The average 30-year fixed-rate mortgage stood at 4.5 percent last week, up from 3.6 percent last May. Home prices have also risen with insurance rates, which serves to deter homeowners from refinancing their loans. The article notes that refinancing fell 75 percent during the first quarter from last year, when refinancing loans made up over half of all lending activity.
"We've had two or three mini refi waves over the course of the last few years," said Joel Kan, director of economic forecasting at the Mortgage Bankers Association to the LA Times. "The incentive is not really there for a lot of borrowers to refinance again."
For three months, due largely to a long and bitter winter, the rate of home sales has continued to fall. Applications for purchase mortgages last week ran nearly 18 percent below the level of a year ago. Many borrowers who took advantage of low refinancing rates in the past years now have little incentive to begin a new loan at a higher rate.
In an effort to maintain their margins, some lenders have reported accepting lower down payments and more borrowers with low credit scores. However, looser attitudes towards credit risk management are not enough to address the critical issues for the majority of potential borrowers, who suffer from high levels of debt, damaged credit from the recession or insufficient incomes to become home buyers.
Lenders can help protect themselves from unnecessary risk by investing in software that aids in credit risk assessment for individual borrowers.