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Nancy Starczyk: Lenders easing credit rules

Posted: August 13, 2014 2:00 a.m.
Updated: August 13, 2014 2:00 a.m.

With demand from consumers for home loans on the rise, multiple sources report that lenders large and small are easing credit score requirements and lending guidelines.

Data collected during the first two quarters of 2014 show greater consumer mortgage demand in the second quarter of the year.

Fannie Mae recently said that uptick in demand represented “a steady and positive near-term mortgage demand outlook.”

Reports Wednesday also suggested that some major lenders are easing credit score requirements for borrowers of jumbo loans, with at least one major bank dropping credit score requirements to 700 from 720.

The lower requirements for jumbo loans are the latest effort by banks to loosen mortgage criteria that are still tight by historical standards.

For example, of the large banks surveyed by the Federal Reserve in July, 39 percent said they were “somewhat relaxing requirements” on prime residential mortgages, and all banks reported that demand for prime mortgages was at its highest level in a year.

The mortgage industry is seeking to replace lost revenue after a spike in mortgage rates in the second half of 2013 made refinancing less attractive. Rates have since fallen again, while demand for housing is picking up.

But for many lenders the search for revenue is tempered by the fact that the housing market is still recovering from the worst crisis since the Great Depression.

New rules and regulations designed to prevent the next mortgage implosion have made some banks less willing to take risk in the market.

In a tacit acknowledgement of that dilemma, Federal Reserve Chair Janet Yellen said in June: “It is difficult for any homeowner who doesn’t have pristine credit these days to get a mortgage. I think that is one of the factors that is causing the housing recovery to be slow.”

In the broad conventional market, where standards are set by giant investors Fannie Mae and Freddie Mac, who purchase or guarantee most mortgages, FICO scores remain stubbornly highly.

FICO scores in June averaged 755, the same number reported in January and only four points below the average for all of 2013.

For now the main bright spot remains a Federal Housing Administration-insured mortgage. Average FICO credit scores for FHA home purchase loans have been dropping steadily, according to Ellie Mae, whose mortgage software is used extensively by large lenders.

Realtors believe lenders could loosen rules without exposing themselves to losses or regulatory backlash. There are plenty of credit-worthy buyers out there, but memories of the housing meltdown freeze too many lenders in place. Realtors can only prod and hope that will change soon.

Nancy Starczyk is President of the Santa Clarita Valley Division of the Southland Regional Association of Realtors. David Walker, of Walker Associates, co-authors articles for SRAR. The column represents SRAR’s views and not necessarily those of The Signal. The column contains general information about the real estate market and is not intended to replace advice from your Realtor or other realty related professionals.



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