US Loan Rejections on the Rise, New York Fed Reports
Aspiring borrowers across the United States are facing an increasing number of loan rejections, according to new data released by the New York Federal Reserve Bank. The data indicate that acquiring credit in June was more challenging than it has been in years, with a decline in the number of individuals seeking loans.
Compiled as part of the New York Fed’s monthly Survey of Consumer Expectations, the report found that the rejection rate for credit applicants soared to its highest level since June 2018, hitting 21.8%, up from 17.3% in February. The increase was observed across all age groups, with the highest rejection rates among those with credit scores below 680.
Auto loan rejections hit a record high, rising to 14.2% from 9.1% in February, the peak in a data series going back to 2013. Rejection rates for credit cards and credit limit increases also increased.
In the meantime, the refusal rate for mortgages escalated to 13.2% in June, an increase from 10% in February. Furthermore, the rate at which mortgage refinancing applications were denied spiked to 20.8%, rising from 16.3% reported in the earlier survey.
The survey showed that the average probability of a loan being rejected increased sharply to record levels for auto loans, credit cards, credit limit increases, and housing-related credit.
While there was a modest pullback in those seeking loans, the number of respondents planning to apply for credit over the next year marginally increased to 26.4% from February's 26.1%. This dip in loan-seeking behavior to 40.3% of respondents in June marked the lowest level since October 2020, down slightly from February's 40.9%.
The data from the New York Fed comes amid significant changes in US lending. Since the spring of 2022, the Fed has aggressively increased its short-term target interest rate in a bid to curb high levels of inflation. As part of this strategy, the Fed has made credit harder to obtain, a move expected to continue with another rate increase predicted next week.
The housing sector has been particularly impacted by rising rates. Mortgage costs, which were below 3% in the fall of 2020, are now hovering around the 7% mark. This sharp increase in home lending costs has prompted Americans to reduce borrowing, leading to a fall in demand for mortgages in the first quarter, even as overall household debt levels rose.
Despite these trends, bank lending to consumers has remained relatively stable, although it's showing some early signs of deceleration. As the financial landscape continues to evolve, the coming months will be critical in assessing the impact of these changes on American consumers and the wider economy.
In the meantime, the refusal rate for mortgages escalated to 13.2% in June, an increase from 10% in February. Furthermore, the rate at which mortgage refinancing applications were denied spiked to 20.8%, rising from 16.3% reported in the earlier survey.
