Statistics released from the Federal Reserve have indicated that one in every four new mortgage applicants are rejected during the application process. The activity is a far cry from the lenient underwriting practices that helped fuel the nations worst foreclosure crisis ever and the new activity is preventing a full recovery of the real estate market at large.

Currently mortgage and housing opportunities are abundant and affordable. Although mortgage rates are beginning to creep up past the five percent mark and are showing a substantial increase over the historically low rates of 4.22 percent achieved in October 2011, borrowing money is still a bargain. Additionally, the national real estate landscape is filled to the brim with an assortment of real estate owned properties and homes being sold by private sellers all at substantial discounts. The two factors have created the perfect storm for home buyers, however, tighter mortgage approval regulations are preventing them from taking advantage of the best rates and current market conditions.

Reason for Rejection

Prior to the real estate boom and bust, mortgage lenders were approving home loan applications with the generosity associated with saints. However, the tables have turn and according to Lawrence Yun, the chief economist for the National Association of Realtors. "Good borrowers with one or two blemishes on their credit are being denied credit."

Lenders have implemented tighter rules for the mortgage approval process and regardless of whether a borrower is looking to finance the purchase of their first home or is buying the fifth home during their lifetime, private lenders are now looking for perfection to mitigate their changes of loan default. Loan applicants now need to have flawless credit histories, credit scores exceeding 730, plenty of legitimate seasoned assets and down payment amounts of 20 percent. Anthony Sanders, the director of Real Estate Entrepreneurship at George Mason University, has speculated that the new requirements have eliminated approximately 30 percent of potential buyers as compared with a healthy real estate market (CNN.com).

The real estate boom was fueled in part by the lackluster enforcement of mortgage qualification rules. Circa 2005, loan options for those with credit scores below the 620 were plentiful and promotions for home loans requiring 'no money down' were as common as non-nonsensical rants from Charlie Sheen.

Fear Preventing Loan Applications

Fear is an emotional reaction either to a real or perceived threat and fight or flight is the biological responses to the condition and a bulk of potential home buyers are fleeing the real estate marketplace. The stricter provisions in the mortgage industry are well known and that is intimidating consumers from applying for home loans in the first place.

Aside from that fear of rejection, consumer confidence is also hindering the mortgage application process. Data from the Conference Board Consumer Confidence Index has indicated that consumer confidence declined by 8.6 percent in March 2011. The lack of optimism is being attributed by a combination of fears regarding inflation combined with a negative outlook for personal income. Until the costs of food, gas and basic living necessities stabilize, mortgage applications will continue to wane, further limiting the pool of home buyers and preventing a full recovery of the housing market.

Home Buying to Be Restricted to the Wealthy

The revisions to the mortgage industry are making what is old new again. Once upon a time, owning real estate was reserved for the upper-crust. Industry insiders predict that the stricter mortgage approval guidelines are expected to make home ownership a reality exclusively for the wealthy.

The creation of Fannie Mae and Freddie Mac after the Great Depression not only helped stabilize the nation's economy but also made home ownership a reality for millions of Americans. The agencies have been accredited with making traditional 30-year fixed rate mortgages a reality and for keeping interest rates low.

Along with other federal agencies Fannie and Freddie are responsible for 90 percent of all loan origination while the rest of the business is divided among private lenders. The changes in both the private sector and the government's decision to back out of Fannie and Freddie for good, is expected to change the housing landscape forever. Jerry Howard, the CEO of the National Association of Home Builders has stated, "For the first time in 100 years, the government is discouraging you. It’s saying ‘We intend to make it more difficult for you and your kids to buy homes,’“ (CNN.com).

Potential home owners fearful of rejection should not let their anxiety prevent them from conducting a search for mortgage rates opportunities. Mortgage Marvel is the industry's premiere mortgage rates origination tool that can help consumers find legitimate mortgage quotes, without requiring any confidential information for the search. We offer mortgages from a variety of local lenders making it easy to locate the best rate opportunities.