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The Harsh Reality: 50% of Loan Applicants Denied Since March 2022
In a recent Bankrate survey, a staggering 50% of Americans who have applied for a loan or financial product since March 2022 have been denied. The majority of these rejections were for cash-out refinances or home equity lines of credit (HELOCs), as homeowners attempted to tap into the equity of their homes. These denied applicants are now at risk of becoming this winter’s foreclosures.
The Impact of Loan Denials
The consequences of these loan rejections are severe, with 82% of those denied stating that the rejection has negatively impacted their finances. Unable to access the credit they need, many are struggling to pay their credit cards, car loans, and even their mortgages. In a desperate attempt to obtain funds, nearly one in four rejected applicants (23%) have turned to alternative financing options, such as cash advances or payday loans, which come with exorbitant interest rates up to 650% higher than traditional loans.
The level of desperation among homeowners is unfathomable. Imagine owning a home with hundreds of thousands in equity, but due to financial struggles and reduced income, you are forced to seek help from payday lenders because you can’t qualify for a traditional loan. This scenario is playing out right now, right before our eyes.
The Widening Gap Between Home Prices and Income
Looking at the graph depicting the median sales price for a home and the median income, the disparity is striking. The data, which extends through 2002, clearly illustrates the growing gap between housing costs and income. Today, the situation is even worse. Unaffordability has become the biggest issue facing our country.
According to Redfin, in 2021, the average housing payment was around $1,600. Just three short years later, as of May 5, 2024, that same payment has skyrocketed to $2,894 per year at an average interest rate of 7.22%. In other words, the average payment has ballooned by over $1,200, representing an unsustainable 25% increase in collective median housing expenses in just three years.
Consumer Expectations and the Gloomy Outlook
U.S. consumers expect mortgage rates to approach double digits over the next three years, according to a survey by the New York Federal Reserve. Households have a gloomy view of mortgage rates, with consumers on average expecting the 30-year mortgage rate to rise to 8.7% over the next year and 9.7% in three years, both of which are series highs. Another Fed survey suggests that consumer expectations are for even higher inflation in the years to come.
A Call to Action for Loan Officers and Realtors
For loan officers and realtors who genuinely care about their past clients, now is the time to reach out. The narrative has changed from homeowners wanting to tap their equity for consumer purposes to homeowners needing to tap their equity out of necessity. The options are dwindling, and your clients’ behavior has moved into the realm of desperation as their mindset about the market continues to deteriorate.
If you’re a realtor seeking help with an outreach campaign, reach out for assistance. Do it to help your clients, but understand that from those conversations, listing opportunities will arise. Your clients desperately need to tap into their equity, and you can be the one to help them navigate these challenging times.
