Lending Guidelines, Mortgage Guidelines

Believe It or Not, Banks Start To Loosen Up In Underwriting

February 3, 2012 by · 2 Comments 

FOMC senior loan officer survey 2011 Q4After a half-decade of tightening mortgage guidelines, banks are starting to “loosen up”.

The Federal Reserve conducts a quarterly survey of its member banks and, last quarter, not a single responding bank reported having tightened its mortgage guidelines for prime borrowers.

A “prime borrower” is defined as one with a well-documented credit history, high credit scores, and a low debt-to-income ratio.

53 banks responded to the Fed’s survey and none said that mortgage guidelines “tightened considerably” or “tightened somewhat” between September and December 2011; 50 said that guidelines remained “basicaly unchanged”; 3 said that guidelines “eased somewhat”.

Mortgage applicants sometimes remark that the mortgage approval process can be challenging. Last quarter’s Fed survey hints that looser standards are coming. 

Not since before the recession have banks lowered mortgage approval standards like this and it bodes well for this year’s Northwest Indiana housing market. Real estate agents report that 1 in 3 home sale contracts fail with “declined mortgage applications” as a leading cause.

Looser mortgage lending standards should mean more home loan approvals for buyers, and fewer contract cancellations. This can spur the housing market forward.

Make note, though. “Looser standards” should not be confused with “irresponsible standards”. It remains more difficult to meet bank standards as compared to 5 years. Today’s underwriters are more conservative with respect to household income, overall assets and credit scores. 

Even as compared to one year ago:

  • Minimum credit score requirements are higher
  • Downpayment /equity requirements are larger
  • Maximum allowable debt-to-income ratios are lower

For buyers and refinancing households gaining approval, though, the reward is the lowest mortgage rates in a lifetime. Mortgage rates in Northwest Indiana and Chicago Illinois suburbs continue to fall, helping home affordability reach new highs.

If you’re in the market to buy a new home or refinance one, there is no better time than the present.

Quick general rule of thumb when keeping an eye on mortgage rates.

Strong Economic News: $$$ from Bonds —> Stocks = Home Loan Rates Go Up

Weak Economic News: $$$ from Stocks —> Bonds = Home Loan Rates Go Down

If you or someone you know is thinking about buying a home, the combination of low home loan rates and affordable home prices make this an ideal time to buy a home. Want to know if you can afford a new home? Call or text me at 512-522-7284 to discuss your personal situation and your home loan options!

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James K Barath, CMPS®

James K Barath is a Certified Mortgage Planning Specialist®, Certified FICO® Professional, Certified Military Housing Specialist® and your FHA Home Loan Expert. He is also a graduate of Purdue University, The CMPS Institute, Dale Carnegie Human Relations Course & Napoleon Hill Foundation's PMA Science of Success Class. It's your home and your future. It's his profession and his passion. He is ready to work for your best interest. Contact James for your FREE Home Loan Approval !  His Motto: I Facilitate the American Dream Through Responsible Mortgage Lending and Financial Literacy!

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Comments

2 Responses to “Believe It or Not, Banks Start To Loosen Up In Underwriting”
  1. Cathy Mattan says:

    Great information! I have gone thru a few clients that have gone thru Piles of red tape to get approval.

  2. Cathy – Although banks report that they are being less critical of home loan applicants, it still means that home buyers in Northwest Indiana have to be diligent on their part to keep their finances and their credit in pristine shape. Those home buyers that are marginally qualified, unfortunately, will continue to face the “red tape”.

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