One of the mysteries of life is why one lender blesses your application for a mortgage and another boots you to the curb. Who’s back there behind the curtain pulling the strings, and what’s their motive?
The toughest lenders
If you’re sensitive to rejection, it may help to know that JPMorgan Chase rejected a third (33.6 percent) of the mortgage applications it received in 2012. That makes Chase the toughest of the 10 largest U.S. mortgage lenders, according to this MarketWatch report.
MarketWatch used 2012 data, the latest available, from the Federal Financial Institutions Examination Council and Inside Mortgage Finance, an industry publication.
The other top-10 lenders most likely to reject borrowers were:
- Bank of America (25.6 percent rejected)
- Wells Fargo (21.2 percent)
- Quicken Loans (17.3 percent)
- U.S. Bank (17.2 percent)
But here’s the thing: These numbers aren’t entirely apples-to-apples. The rates for Wells, BofA, Quicken Loans and U.S. Bank (but not Chase) include loan pre-approval applications, or prescreenings. That can skew the numbers. Without pre-approvals, Wells’ rejection is just 12 percent, MarketWatch says.
Also, take heart: These numbers aren’t as bad as they look. Nearly 9 percent of the “rejections” were for applications whose borrowers just gave up and walked away.
The easiest lenders
The easiest lender in the bunch was SunTrust Mortgage. It rejected only 11 percent.
The other top-10 lenders more likely to approve an application:
- PHH Mortgage (11.5 percent rejected)
- Flagstar Bank (13.2 percent)
- Citibank (14.3 percent)
- Branch Banking and Trust Co. (15.6 percent)
Among this group, only Citi’s rate includes preapproval applications.
It’s (slightly) easier to get a mortgage
With the economy improving, it’s getting a bit easier to get a mortgage, for the moment, anyway. FHA recently relaxed some of its rules, although mortgage insurance requirements are making FHA loans more expensive.
Starting next year, getting a mortgage may get harder as new federal rules kick in. Right now, though, some lenders are competing by loosening requirements a bit. But only for borrowers with the best credit scores. “Options for those with smaller down payments and lower scores are still limited,” says CNBC.
And yet, compared with the worst years of the crash, mortgage lenders have definitely eased up. In 2009, “rejection rates among most of the lenders on this list ranged from 13% to 70%,” MarketWatch says.
Across the industry, lenders in 2012 rejected 18.5 percent of applications for first lien mortgages on owner-occupied home purchases and refinances, according to the Mortgage Bankers Association.
Why the big difference?
Lenders all play by the same rules, including debt-to-income requirements, credit scores and down payments required of borrowers. These rules are imposed by government-backed agencies like Fannie Mae and Freddie Mac, which buy mortgages from lenders. So why the big differences?
One major reason: Lenders can, and do, add their own requirements (called “overlays”). They often do this out of fear they’ll be required to buy back mortgages when homeowners default, at a cost of billions of dollars.
Experience taught lenders that sloppy screening of mortgage buyers costs dearly. Fannie Mae and Freddie Mac forced lenders to buy back $120.29 billion worth of defaulted mortgages between 2009 and September this year, according to Inside Mortgage Finance, an industry publication.
Also, there may be differences among banks’ customers. Writes MarketWatch:
Chase and Bank of America, which had the highest rejection rates in 2012, have subprime borrowers that they acquired when they bought Washington Mutual and Countrywide, respectively. If those borrowers tried to buy another home, it’s likely that they turned to these banks since they already had a relationship with them and were denied because of their poor credit, says Feldstein. A spokesman for Bank of America says the bank’s denial rates have been consistent over several years, ranging from 20% to 25%, including prior to the Countrywide merger. Chase did not respond by press time.
Quicken Loans’ customers happiest
There’s more to finding happiness with a lender than just approval rates. If you’ve got a strong application (read 5 Tips to Make Sure Your Mortgage Loan Gets Approved) your biggest worry may be finding great customer service.
This year, Quicken Loans topped J.D. Power’s 2013 U.S. Primary Mortgage Origination Satisfaction Study for the fourth year in a row. No. 2 was BB&T (Branch Banking & Trust Co.) and U.S. Bank ranked third.
Satisfaction among borrowers was higher this year than at any time in the past seven years. Borrowers who refinanced were a bit happier than home-purchasers, especially first-timers, possibly because, having borrowed before, they knew what to expect.
Were you rejected or accepted for a mortgage recently? Tell us what you think made the difference in the comments below or on our Facebook page.
Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.