Loan underwriters often cite insufficient collateral, but the underlying issue may be mortality risk. Image: Inthon Maitrisamphan/Shutterstock.com
By: FEDweek StaffWhile persons at older ages might seem to be at an advantage in getting a mortgage or refinance one, they actually are slightly more likely to be rejected, according to a report from the Center for Retirement Research.
“Older homeowners tend to have more financial resources and better credit scores than their younger counterparts, so one would expect that they could borrow more easily . . . however, it is important for older individuals to know that they are more likely to be denied credit,” it said.
It said that the overall rejection rate for mortgage applications is 17.5 percent but that rate starts increasing at age 50. It is 1.1 percentage points higher for those in their fifties, 1.5 percentage points higher for those in their sixties and 2.7 percentage points higher for those in their seventies.
Loan underwriters “frequently cite insufficient collateral, but the underlying issue may be mortality risk, which is tightly associated with prepayment, default, and recovery risks,” it said. That is consistent, it said, with the rate of rejections increasing with age.
It added that “while the relationship between age and rejection is large and robust, it does not necessarily indicate that lenders are violating fair lending legislation. “ That law allows lenders to consider borrower’s age under some circumstances and “mortality risk has real economic implications for lenders for which they might require additional collateral.”
Also, it said, the value of the collateral for the requested loan—typically, the person’s home—may be lower than might be expected since they might have been unable to maintain that home at a high level of quality.
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