Mortgage lending appears to be loosening. At least for now.
In its quarterly survey of member banks, the Federal Reserve asks senior loan officers around the country whether their "prime" residential mortgage guidelines had tightened within the last 3 months.
A prime borrower is one with a well-documented credit history, high credit scores, and a low debt-to-income ratio.
Of the 54 responding banks, just 2 said its guidelines had tightened during the period October-December 2010. That's less than 4 percent. And, by comparison, 95 percent of banks said guidelines remained "basically unchanged".
The remaining banks reported a loosening.
It's a positive sign for the housing market, and for home buyers nationwide. If banks have stopped raising the hurdles of home loan approval, in theory, more would-be buyers will be approved.
It's much tougher to get a home loan versus 5 years ago. Delinquencies and defaults have changed how banks review loan applications. Today's underwriters are more conservative with respect to household income, total assets and overall credit scores.
Even as compared to January 2010, approval standards are higher :
- Minimum credit score requirements are higher
- Downpayment/equity requirements are larger
- Maximum allowable debt-to-income ratios have been lowered
Although mortgage rates remain low, qualification standards do not. Based on last quarter's banking survey, however, mortgage applicants in California may find approvals easier to come by soon. Low rates don't matter, after all, if you're not eligible to get them.
The housing market is strong and lending looks to be loosening. It should help fuel the demand for homes in 2011, which will push supplies down and lead prices up. For homeowners that qualify, therefore, the best time to purchase a home may be sometime this spring.
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