A new study by the Center for American Progress found that a large majority of home loan borrowers in states with higher loan-to-value ratios (LVR) — such as New York, Massachusetts, California, Texas and Michigan — are still unable to afford the interest they’ll pay on their loans.
“While the typical borrower has been able to refinance their loans for more than $2,000 per month, they are still left behind on their monthly payments,” said CAP Senior Fellow David E. Kamin.
“For many borrowers, the cost of living has skyrocketed and the lack of affordable housing is a barrier to earning a decent living.
With the current financial climate, the only way to make ends meet is by getting a home mortgage.
This study makes it clear that the current LVR mortgage rates do not provide a fair playing field for those with modest incomes.”
The report was released Thursday as a partnership between CAP and Credit Karma, the online lender that allows borrowers to get loan refinancing for $500 or less.
“The fact that these borrowers are facing insurmountable debt loads is not surprising, but what is surprising is that there is no relief for them,” said David A. Stumpf, CAP senior vice president for finance and policy.
“They are struggling to get by while struggling to pay their bills, while their home values drop and the economy continues to weaken.”
According to the report, about half of the borrowers who had their first loan refinanced in 2018 would have been able, at the current rates, to afford their first mortgage in 2022.
For the average LVR borrower, their average mortgage payments in 2022 would have fallen to $1,100.
While there is a $4,000 federal tax credit for borrowers who can refinance, the report found that those who have not yet taken advantage of the benefit could still qualify.
While most borrowers in the report were able to get loans for $1 million or less, a substantial number of borrowers have been unable to refinish their first home loan due to their LVR ratios, or the amount of their loan payments that are less than $500.
The average monthly payment for a LVR-eligible borrower in 2019 was $1.3 million, according to the study.
In 2017, the average payment was $3,500.
“With the current economic conditions, it’s critical that the LVR loan rate is lowered to a level that allows these borrowers to afford a second home, and we urge the Federal Reserve to act now to lower the LRO rate by 25 basis points,” said Kamin, adding that the median loan-interest rate on a LRO is 25 basis units per year, so lowering the LRP by 25 would provide a net reduction of $300 billion in monthly payments.
“LVR borrowers are the ones who most need help right now, but they are also the ones struggling the most,” said Karen L. Siegel, policy director at the National Consumer Law Center.
“As a result, the federal government needs to lower its LVR rate by at least 25 basis point to ensure that these millions of borrowers can afford a home, but that they are able to do so on a fair basis.”
The LVR tax credit program provides a $300 tax credit to homeowners who refinance or modify their mortgage in 2018, 2018, 2019 and 2020, and the LRA program provides an additional $150 credit for first-time borrowers who refinishly modify their LRO in 2018 and 2019.