The Quest for a Mortgage Analysis

It has been five years since the recession, which was comprised of several crises, including the worst housing market crash in U.S. history. Today, rejection rates for mortgage loans have significantly declined after lenders pulled back on mortgage originations in the face of rising foreclosures (Andriotis B8). However, it is still not certain whether or not the acceptance rate of mortgage applications will increase in the future. According to the Federal Financial Institutions Examination Council, home buyer rejection rates in 2012 at the 10 largest lenders were between 11 and 34% (Andriotis B8).

Despite the federal regulations and guidelines put in place for attaining a mortgage loan, home buyers are constantly being hit with rejection due to large lenders, such as JP Morgan Chase and SunTrust Banks, adding their own set of guidelines that a more stringent than the federal rules (Andriotis B8). JP Morgan Chase, which had the highest rejection rate of 33.6% (26,894 rejections out of 80,036), had subprime borrowers that were brought over after the acquisition of Washington Mutual (Andriotis B8). SunTrust Banks, on the other hand, had the lowest rejection rate of 11% (3,831 rejections out of 34,749) (Andriotis B8). Bank of America was also a lender that received a high rejection rate (25.6%), which also encountered the problem of subprime borrowers after its acquisition of Countrywide (Andriotis B8).

Andriotis notes that because most homebuyers have to answer a list of questions about their financial positions, they are denied before they even make it to the application process. This can increase lenders' rejection rates if preapproval denials are included. Wells Fargo, for example, denied about 12% of their applications in 2012 which increased to approximately 21% with preapprovals (Andriotis B8). Andriotis stresses that homebuyers should learn to have more options when considering mortgage loans, seek help from mortgage brokers who work with several lenders to know if they will be denied beforehand, and look to lenders' competitors after being denied (B8).

This topic on mortgage loan rejections is extremely important to the housing market because it can affect the value of homeowners' homes. The housing crisis of 2008 was essentially a result of poor lending decisions, which caused homebuyers to default on loans. In return, mortgage lenders assumed a tremendous amount of risk and homeowners resorted to foreclosures. This added to the economic crisis that caused a recession. The topic relates to class in regards to financial service institutions providing a broad range of services in order to compete with their competitors. Although JP Morgan Chase, SunTrust Banks, and Bank of America are not mortgage banks they still partake in mortgage lending activities. Also, the issues of regulation and deregulation are prevalent because the regulations of each