Fewer Mortgages Approved, Fewer Contracts Finalized

The number of Americans entering into contracts to buy existing homes plunged in July by the most since record keeping began in 2001.

What’s more, that recent report from U.S. Realtors helped drive the Dow Jones industrial average to a triple-digit loss this past week.

The National Association of Realtors said its seasonally adjusted index of pending home sales for July fell 16.1 percent from a year ago and 12.2 percent from June, as borrowers struggled to complete home purchases, particularly in expensive areas.

The decline was more than five times worse than economists expected.

The Dow tumbled 143.39 points, or 1.1 percent, to 13,305.47. Other major indexes also dropped about 1 percent.

“Bodies keep washing ashore that are related to subprime,” said Robert Morgan, senior V.P. at Janney Montgomery Scott LLC in Philadelphia. “I think that really helps facilitate dragging the market down.”

Lawrence Yun, the Realtors’ senior economist, called problems “temporary” and related to jumbo home loans above $417,000 that cannot be packaged into securities sold to investors by Fannie Mae and Freddie Mac.

With defaults rising among borrowers with weak credit, lenders have backed off from all but the safest mortgages, and many lenders making jumbo mortgage loans have demanded that borrowers pay higher rates.

“Our members are telling us some sales contracts aren’t closing as mortgage commitments have been falling through at the last moment,” said Yun.

“There are continuing issues for [bad credit mortgage] borrowers, but there are no real problems for the majority of home buyers with conventional mortgage financing.”

Yun said there were signs the market had been “stabilizing somewhat” since mid-August. The report showed pending resales dropped in all four regions.

Re-sales of U.S homes fell 21 percent in the West, 13 percent in the Midwest, 12 percent in the Northeast and 6.6 percent in the South.

Also on Wednesday, a trade publication’s survey said a third of home mortgage loans originated by mortgage brokers failed to close in August as investors shied away from riskier borrowers.

The mortgage broker survey of 1,700 brokers also found that nearly half of borrowers with adjustable-rate mortgages were not able to refinance loans.

That’s a major concern, as an estimated 2.5 million mortgages issued to U.S. borrowers with weak credit will reset at higher rates by the end of next year, according to the FDIC.

SOURCE: Chicago Tribune