Fannie Mae National Housing Survey a Tale of Two Mortgage Processes; Homeowners With Good Credit Confident, Hopeful, Satisfied

Business Wire, July 19, 2001

Business Editors

WASHINGTON--(BUSINESS WIRE)--July 19, 2001

Others Able to Buy Homes Despite Poor Credit Rating but Understand

Process Less and Report General Dissatisfaction

Growth in lending to credit-impaired borrowers has given rise to two mortgage processes in America - one that leaves borrowers with stronger credit histories feeling more confident and satisfied than ever and a second in which families with credit problems can nevertheless obtain mortgages, but at higher prices, with less confidence and general dissatisfaction about the mortgage process, according to the 2001 Fannie Mae National Housing Survey.

"Clearly, the housing finance system is working extremely well for millions of Americans. But as the survey found, not for every American," said Fannie Mae Chairman and CEO Franklin D. Raines. "The results raise several issues for the entire mortgage industry to address, and the central question is whether all consumers are enjoying their basic right to the lowest-cost mortgage for which they can qualify. Answering this and other questions is critical if we are to close the homeownership gaps facing many groups in America, achieve true consumer rights and equal opportunity in housing finance, and further advance the progress of the best housing finance system in the world."

The general findings of the 10th annual survey found that more homeowners, buoyed by a drop in mortgage rates from year-ago levels, believe it is a very good time to buy than said so a year ago - 27 percent compared to 19 percent.

In the general findings is little, if any, concern that might accompany the recent spate of bad news about layoffs, corporate earnings warnings and the stock market slide. In fact, the percentages of Americans who considered having enough money for a down-payment, job insecurity, and finding a house they could afford as obstacles actually declined, or remained the same, from the previous year.

However, the 2001 survey's particular focus on credit-impaired borrowers revealed a dissonance between their attitudes and those of borrowers with better credit.

The survey confirmed that credit-impaired borrowers consider lending to them - known as "subprime lending" - an important source of financing that they might not otherwise get - if at some of the highest rates in the market.

While all homeowners are split on the question of whether lenders take advantage of credit-impaired borrowers or help them, 49 percent of credit-impaired borrowers said these lenders help people like them, including 48 percent of credit-impaired borrowers paying more than 10.5 interest.

Yet, these borrowers ultimately choose a lender because they believe that they have few options, not because of the lender's reputation or because they believe the lender is offering them a good deal on a loan. Less than half, 43 percent, of credit-impaired borrowers said that their lender had a solid or one of the best reputations.

Only 11 percent of credit-impaired borrowers said their mortgage lender offered the best interest rate for which they qualified, three times less than the percentage of all homeowners who said so. The reason cited by credit-impaired borrowers as to why they chose their lender distinguished them from all homeowners.

The reason was that they believe the lender approved most loans; 15 percent of credit-impaired borrowers cited this reason versus just 4 percent of all homeowners.

Consequently, many credit-impaired borrowers report general dissatisfaction with the mortgage process. Of the 45 percent of credit-impaired borrowers who said their mortgage interest rate exceeded 10.5 percent, 81 percent said they were dissatisfied with their loan rate.

Among all credit-impaired borrowers, 58 percent said that the lender controlled the mortgage process, compared to 46 percent of all homeowners who said they - not the lender - controlled the process. Only 44 percent of credit-impaired homeowners said that they would be very or fairly likely to return to the same lender if they needed another mortgage loan, compared to 63 percent of all homeowners.

Sixty-three percent of credit-impaired borrowers said finding a mortgage lender they can trust would be an obstacle if they wanted to buy a home today. Only 34 percent of the credit-impaired borrowers say they are confident that they got the best mortgage deal possible, compared to 68 percent of conventional borrowers.

Another 29 percent of credit-impaired borrowers said they tried to shop for the lowest cost mortgage, but now have doubts about whether they actually got it.

Among other findings about credit-impaired borrowers:

-- More than two-in-five reported having mortgages with prepayment penalties,
including 56 percent of those borrowers who reported paying more than 10.5
percent interest.

-- One-in-five said their lender told them they had a balloon loan - a mortgage
in which the entire unpaid balance becomes due after a period of 5-10 years -
and 54 percent of these said they were also paying 10.5 percent or more in
interest.

-- Thirty-nine percent said their lender told them that their interest rate
would go up in a number of years.

-- They are less knowledgeable about homeownership but not necessarily naive
about the mortgage process. Half said that they are comfortable with their
knowledge and understanding of the terms related to homeownership, compared to
two-thirds of all homeowners. However, a greater percentage of credit-impaired
borrowers than all homeowners - 61 percent to 57 percent - said that a higher
interest rate of just a few points makes a difference in the amount of one's
monthly mortgage payment.

-- Forty-five percent wonder if they will ever own their home outright. By
contrast, 77 percent of all homeowners said they look forward to this day.
Forty-five percent of credit-impaired borrowers also said they were at least "a
little bit" worried about making their mortgage payment in the next year.

-- Thirty-four percent have used a payday loan or check cashing service,
compared to 9 percent of all homeowners.