Why Trump Is Wrong On Mortgages

Donold Trump — a possible candidate for President — thinks mortgages are tough to get, maybe impossible.

“If somebody wants to buy a house,” he told CNN’s Piers Morgan, “it’s virtually impossible to get the money from a bank. And it’s — even if they have good credit. Even when mortgages are coming due, and people that have been paying a mortgage for 10 and 15 and 20 years, they can’t get money or they can’t get an extension from a bank. So the banks are really not behaving properly, that can I tell you.”

Really? I’d argue that mortgages today are widely available, as millions of people in just the past year can attest.

For instance, the National Association of Realtors says existing home sales were running at an annual rate of 4.97 million units in October — that’s up 13.5 percent from a year ago. If people can’t get mortgages then how are they buying homes? Yes, some buyers pay cash — 29 percent — but that means 71 percent got financing when they bought and 71 percent of 4.97 million existing home sales tells us that 3.5 million existing home transactions involved a mortgage.

Of course, people use mortgage money not only to buy real estate but also to refinance. The Veterans Administration, as one example, reports in fiscal 2011 that the government guaranteed 357,600 VA loans, including 186,600 purchase money mortgages and 171,000 refinances. Obviously, for these folks, mortgages were not “virtually impossible” to get, they are instead entirely accessible.

The same is true with FHA loans. In fiscal 2011 the government insured 777,521 purchase money mortgages and 420,561 loans to refinance, a total of 1,271,211 FHA loans.

Not everyone got an FHA loan. But roughly four out of five applicants did. There were 1,603,669 FHA mortgage applications in fiscal 2011, meaning 332,458 did not go through. But in any year some portion of all loans applications are declined or withdrawn, often for reasons which have nothing to do with the financing — think of a home with a structural problem or title issue.

And surely the mortgage business is not so bad for mortgage bankers. The Mortgage Bankers Association reports that “independent mortgage banks and subsidiaries made an average profit of $1,263 on each loan they originated in the third quarter of 2011, up from $575 per loan in the second quarter of 2011.”

In addition, said the MBA, “average production volume was $237 million per company (or 1,114 loans per company) in the third quarter of 2011, up from $174 million per company (or 866 loans per company) in the second quarter of 2011.”

You have to ask: If mortgages are “virtually impossible” to get then why have origination profits more than doubled? Why are originations up?

Loan Rates

It’s hardly a tough time to get a mortgage because home prices are about 19.1 percent lower nationwide than in April 2007 and mortgage rates are in the dumper. In recent weeks Freddie Mac has reported that both fixed rate mortgages and ARMs have been at record lows.

NAR says that as a result of falling home prices and low mortgage rates that affordability is at its highest and best level in years — something that could not happen without the ready availability of FHA, VA and conventional mortgage financing.

For background and more information, see Four Foreclosure Financing Myths on RealtyTrac.com.

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