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Real Estate Constraints Reduced? Banks May Be Loosening Their Mortgage Requirements

By
Real Estate Agent with SeattleHome.com -Coldwell Banker Danforth

Seattle home buyersRecent articles from a number of news outlets suggest that mortgage lenders are beginning to loosen up their standards for mortgage qualifications.  While some might be concerned that loose credit standards were part of the cause of our last real estate meltdown, we're in a very different league right now.

Mortgage qualification standards have become draconian in recent years, and the initial reasoning was sound.  Banks were reticent to lend money when their current portfolios were constantly in the loss category, as a large percentage defaulted while the market declined.  The changes in the current market have allowed lenders to begin realizing profits on real estate lending, though, and new standards in appraisals, combined with appreciating home prices, have made most of their mortgage portfolio less risky.

The newly-loosened standards of mortgage lenders today will still look nothing like they did at the real estate boom's peak.  We still have income verification and qualification, credit score requirements far higher than in the past, and verifiable appraisers/appraisal companies.  However, there is now a shift toward allowing a more reasonable percentage of the population qualify for a loan.  This is good for the country and the real estate market as a whole.  Consumer spending on real estate has a huge positive effect on the economy, and responsible home buyers with reasonable credit strengthen their long-term financial picture when buying a home.

From a recent article in Realtor Magazine:

Tight underwriting conditions have been one of the main obstacles for the housing market recovery. But the credit agency says that those conditions began to ease somewhat this year and likely will continue to.

"Rising house prices give lenders more breathing room to extend credit," the analysts at Moody’s noted.

Over the past year and a half, large lenders have loosened up or held standards stable on prime loans for mortgage originations, according to the Survey of Senior Lending Officers.

Aiding lenders’ confidence is that mortgage delinquencies have fallen to pre-recession rates.

"Being right-side up on the mortgage improves a borrower’s credit profile. It also lowers the risk of default and increases the likelihood of trade-up buying," according to the Moody’s report.

 


Comments (1)

Kevin Hancock
Evergreen Home Loans NMLS 3182 - Poulsbo, WA
The Hancock Mortgage Team

The biggest issue I still see is the qualification process for self employed Borrowers.  I am not saying that they should be allowed to qualify if they write off all of their income, but I look forward to seeing more "make sense" guidelines that take the whole profile into consideration going forward.  Great post Sam! 

Mar 07, 2013 04:32 AM