Barbara's Blog - Why Loans Are Still Hard to Get

Remember when all you needed to get a mortgage loan was a job, a decent down payment and good credit? Well it is basically still that way today which begs the question, why are loans harder to get these days.

These days lenders are requesting more personal information about you which makes the loan process longer. For example, if the borrow were self-employed, in years past only one year of tax returns was sufficient, now, two or three years of tax returns may be required especially of the underwriters are uncomfortable with the borrower.

Buy backs is a major reason. Buy backs are loans that mortgage lenders issue then sell to servicing companies like Fannie Mac or Feddie Mac.

If a borrower defaults on a loan, servicing companies review the loan to see if there was a problem with underwriting or any mishandling of the loan by the original lender. If there is, servicing companies can force the lender to buy back the loan.

Author of Mortgages 101, David Reed says, "When a mortgage company makes a home loan, it doesn't pull money out of its savings accounts, but instead utilizes a credit line from which it draws. The lender approves a loan, draws down its credit line by $300,000 to issue the mortgage. If a lender does this several times a day pretty soon that credit line would start to look a little thin. When a lender needs to replenish its mortgage coffers, it sells the loans it has already made to other lenders."

Because there are specific agreements between lenders buying and selling loans called conforming loans. These loans have to meet certain criteria to be eligible for purchase by a secondary party.  For example, there are caps on the amount that can be borrowed, most likely specific down payment requirements and of course credit scores cannot be below 620. Reed says that these criteria are so lenders that buy loans do not have to re-underwrite loans that have been certified by the original lender as sellable.

As a borrower, just be prepared to respond to requests for more documentation and for the process to take longer. Keep in mind that this does not mean you will be denied. Look at it this way, it can be to your advantage, the tougher it is to get a loan, the harder it will be to default on that loan.