Lenders relax standards on home loans
Lenders are loosening standards on mortgages for homebuyers as fewer homeowners apply to refinance their loans, a Federal Reserve survey shows.
More than a quarter of the large banks in the report say they have somewhat eased the credit standards on residential mortgages over the past three months, according to the central bank's October senior loan officer survey.
Rates up, refis down
Nearly half of the banks in the survey reported weaker demand for residential mortgages. About 4 in 10 banks say their refinance application volume is substantially lower than the volumes seen prior to the increase in mortgage rates. The 30-year-fixed jumped by more than a percentage point in the spring after Fed Chairman Ben Bernanke said it could reduce the pace of bond purchases this year. Rates have adjusted down since then but remain more than half of a percent higher than they were prior to the hike.
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As homeowners regain equity in their homes, some lenders say they also have eased standards on home equity lines of credit. About 1 in 5 banks in the survey says the demand for HELOCs has increased in the past three months. About 8.7 percent of lenders in the survey say they have eased standards on home equity lending. The majority say standards have remained unchanged.
Good news for homebuyers
As the demand from refinancers shrinks, homebuyers get faster service from their lenders. About 44 percent of the lenders say the time for closing from the day of application has somewhat reduced since the volume of refinances fell.
Most say they have not changed their credit score requirements for buyers since rates climbed, but two large lenders in the survey say they reduced their minimum FICO score. The survey does not specify the lenders.
Three out of 64 banks said they would be somewhat more likely to approve a mortgage to a borrower with a FICO score of 620 and down payment of 10 percent than they were before the increase in mortgage rates. The majority of lenders say the likelihood of approval for such a borrower hasn’t changed since the spring.
ARM share gains
Some lenders also indicated that the demand for loans has shifted somewhat from the traditional fixed-rate loans to adjustable-rate mortgages because ARMs still offer attractive rates for borrowers. The average rate on a 5/1 ARM was 3.26 percent in Bankrate's latest weekly survey. That's about 1 percentage point lower than the rate on a 30-year fixed loan.
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What is this the pessimist forum? I don’t feel sorry for those dumb enough to take out loans they can not afford, its called adding and subtracting, you know take what you make and deduct what you will pay and see what’s left to live on.
I tried to refinance a year ago. I magically didn't qualify. I apparently could afford to keep paying over $600 on my mortgage but I couldn't afford what would have been the new rate of just over 400. Same bank. I have a great credit score and am thousands ahead on my mortgage. But just like everybody, my income hit a downturn for three years though it is now headed back up.
But every time I deal with a Wells Fargo person for whatever reason, there is apparently a note attached to my file that they should talk to me about refinancing.
Just this week THEY came to ME with the idea of unsecured loan to pay down some of my credit card debt. Great. I'd jump on that. Well, I magically don't qualify for that either even though they can clearly see I always pay on time. My debt to income ratio is too high. Well, I wouldn't need a loan otherwise; would I? And I apparently don't have enough of a relationship with the bank. They hold my freaking mortgage and a credit card. How much more commitment do they want from me to our relationship? At this point, I'd rather break up with them completely.
Sorry we can't help you with a loan at this time, but you really should apply again to refinance. REALLY? Leave me the frick alone.
Maybe now I will be able to sell my house and get out from an under water loan.