Mortgage Market 2011 - Not a Pretty Picture

The annual Federal Reserve report on Home Mortgage Disclosure Act (HMDA) data for 2011 paints a bleak picture.  Despite interest rates at or below 4%,
mortgage lending volume continued its four-year decline.  The drop in mortgage lending was
particularly steep for minority home buyers, and in distressed neighborhoods.  More than 40% of home purchase loans that were made were backed by government (FHA or VA) insurance. 
Overall mortgage denial rates were 31% for black applicants compared to
12% for non-Hispanic whites.  Some
of the difference is explained by income and credit variables, some by lender choice
(or steering) and some remains unexplained.

Interestingly, the Fed staff also measured the extent to which homeowner
income was overstated on 2005 and 2006 mortgage applications, by comparing HMDA
and Census income information for those years.  They found that incomes were significantly inflated on applications for
mortgages in Florida, California, Hawaii, Nevada and Rhode Island.  (Does this make Rhode Island a sand
state?)

If historically cheap mortgage credit is not increasing supply or stimulating demand, then there remains a fundamental misalignment between home prices and household incomes and balance sheets.  Deleveraging still has a ways to go.