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One-Third of Declined Mortgage Applicants Eligible for DPA Programs

Down Payment Resource (DPR) has announced findings of an analysis showing that a substantial share of mortgage loan applications were both declined for reasons that can be addressed with homebuyer assistance, and/or eligible for homebuyer assistance programs.

Report findings were derived by analyzing Home Mortgage Disclosure Act (HMDA) data for tens of thousands of declined purchase mortgage loan applications, representing $3.7 billion in volume furnished by mortgage lenders. These loan apps were declined for either insufficient cash-to-close or disqualifying debt-to-income (DTI) ratios, but were categorized as “potentially recoverable” with homebuyer assistance. Homebuyer assistance eligibility for this group of applications was determined by running loan application data—including location, home price, loan amount, income, and homeownership history.

HMDA, originally enacted by Congress in 1975, requires many financial institutions to maintain, report, and publicly disclose loan-level information about mortgages. This data helps show whether lenders are serving the housing needs of their communities. HMDA data also provides public officials information that helps them make decisions and policies, and sheds light on lending patterns that could be discriminatory.

DPA’s analysis found that a large share of declined loan files were eligible for homebuyer assistance, 33% of all declined purchase mortgage loan applications were declined for either insufficient cash-to-close or disqualifying DTI ratios, and eligible for homebuyer assistance at the time of declination.

“The large share of loans potentially recoverable with homebuyer assistance highlights a significant, low-cost opportunity for lenders to increase purchase volume,” notes the report.

Declined loan applications were typically eligible for multiple downpayment assistance programs, on average for 10 such programs, indicating there are often multiple options available to homebuyers financing with homebuyer assistance.

“Our analysis definitively shows that homebuyer assistance programs are the most promising pathway to homeownership for a sizable share of the homebuyer population,” said DPR CEO Rob Chrane. “Yet, homebuyer assistance programs are seldom offered as an option. It is my hope that this information will help lenders better serve their communities by showing that qualified homebuyers who need down payment assistance are not a niche market, but a major market that continues to grow.”

DPR reports that applying homebuyer assistance to eligible declined loan applications would have reduced loan-to-value (LTV) by an average of 5.85%, making many of the loan applications recoverable.

DPR’s Q2 2022 Homeownership Program Index (HPI) report revealed a 1.6% uptick in the number of homebuyer assistance programs available to help people finance homes, raising the number of programs nationwide to 2,273, a net increase of 35 over Q1. Of these programs, 83.5% had funds available for eligible homebuyers as of July 5, 2022.

 

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.
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