Mortgage Guidelines Starting to Loosen?

Mortgage and Lending


Fed Lending Guidelines Q4 2010Mortgage lending appears to be loosening. That is, IF you're only looking at certain data.

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.

Is this a positive sign for the housing market, and for home buyers nationwide? Or is it merely that guidelines have already become so strict that there isn't much else to require from our consumers? 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 today 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, in my opinion, have not eased up, but rather remained the same for the most part. Based on last quarter's banking survey, however, this data only makes it look like mortgage applicants may find approvals easier to come by soon. I must say, I'm not convinced that approvals will come easier just because several banks didn't report a 'tightening' of their guidelines. With 6 years in the mortgage business, I know that low rates don't matter, after all, if you're not eligible to get them.

The housing market is absolutely growing stronger and lending changes everyday. Be careful what data you read and placing your trust in charts that could possibly be misleading.  You also should not allow charts or data to scare you into not purchasing. You would be surprised at the amount of clients I prequalify who weren't at all confident in their ability to purchase a home initially and ended up achieving the American dream of homeownership. Your best bet is to contact a local loan officer and get straight answers.

As always, I am available to answer your questions.

~Christina Livingston, ACOPIA Home Loans, Franklin, TN

(615) 656-2821 office    (615) 586-3178 cell

Yes, we are a direct mortgage lender.

Comments (4)

MaryBeth Mills Muldowney
TradeWinds Realty Group LLC - Braintree, MA
Massachusetts Broker Owner

We do have a number of people who would like to buy but it seems that the mortgage requirements are tightened at every corner, as you mentioned credit scores must be higher along with downpayments as well as debt ratios being lowered....where will this swing end?

Feb 18, 2011 04:50 AM
Dan Edward Phillips
Dan Edward Phillips - Eureka, CA
Realtor and Broker/Owner

Hi Christina, thanks for sharing the data and your input.  It is, in my pinion, more difficult to meet lender requirements.

Feb 18, 2011 04:54 AM
Ryan Frost
Compass Lending Solutions, LLC - Draper, UT

I agree with your comments regarding the restrictions and guidelines staying the same. Any "new" programs that I am seeing offered have substantial requirements to qualify, such as no condos, or 750+ FICO, etc. 

In addition, mortgage insurance is continually on the rise. Compounded with rising interest rates, guidelines will eventually have to loosen up if banks want new originations in measurable numbers.

Feb 18, 2011 04:55 AM
Christina Livingston
Franklin, TN

@ Ryan Frost: It amazes me how different the monthly MI premiums are now on FHA compared with just a few years ago in 2008. 

@ Dan Edwards: Yes, they have.  That's exactly why I came to ACOPIA....because here, we have a more 'common sense' approach to underwriting. Sure, guidelines are guidelines, but one thing I've definitely enjoyed here is an u/w philosophy of 'finding reasons why the loan makes sense rather than finding reasons to disqualify the loan.'  Sure, we're not going to approve a 550 credit score, or someone with severe delinquencies that they make a habit out of paying their debts late...but for those 620 borrowers, FTHB's, etc., FHA really has been the route to go. I've seen approvals up to a 54% back end debt ratio - with compensating factors such as the borrower has 2-3 months PITI in their savings, or perhaps has strong job history, assets, etc.  The biggest changes I am seeing as a lender in terms of getting loans closed is more related to the HVCC Appraisal laws rather than guidelines tightening.

One thing I would love to see come back is HIGHER LOAN TO VALUES and more DPA's make a come back.  USDA can only go so far, and here in TN, we have THDA that works in conjuction with an FHA loan, to pay the borrower's down pymt for them.  However, the THDA DTI req's are set in stone - which can sometimes present a challenge.


@ Mary Beth: Who knows where the swing will end? It is going to be up to consumers to start saving and stop buying everything on credit.  I believe if more folks were aware of how each time they buy something on credit, they are limiting themselves as to how much home they can afford, then perhaps we'd have more disciplined, empowered buyers.  We are programmed to think we 'need' everything, when in fact we do not need even half of what we purchase.  As for me personally, I'm more interested in saving than impressing people I don't know at a stop light with the luxury car I'm in - which is why I literally drive a 1998 4'Runner.  Sure, I could go purchase a new car today, or go on a shopping spree. But my vehicle is paid off, and I keep a zero balance on my credit cards each month.  I think we have to live what we preach to our clients in hopes that we can lead by example.  The guidelines are not a respector of persons....or that new something that someone just has to have.

Feb 18, 2011 05:22 AM