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.

By MSN Real Estate partner Nov 5, 2013 9:38AM

Image: Real estate agent © A.G.E. FotoStockBy Polyana da Costa, Bankrate.com


Bankrate on MSN MoneySome mortgage lenders have loosened credit standards for homebuyers as demand for loans from refinancers slows, 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.


Post continues below.

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.


More from Bankrate.com



Tags: loans
Nov 13, 2013 10:09AM
relaxing standards?  No way!!  Not with the new Qualified Mortgage guidelines and Ability to Repay coming out in January of 2014.  Misleading headline for the consumer, especially if they are not mortgae saavy. 
Nov 11, 2013 8:00PM
Product debt science may still be a negativism issue amid the gathering-information, administration, and affirmation procedure.
Nov 11, 2013 12:00PM
It seems to be a weekly thing. One week its loans are getting easier to get....and then soon the article about how banks are toughening up....I am seing more and more rules from the banks. It seems that they suspect that all customers are potential deadbeats...regardless of their record or credit score.... 
Nov 11, 2013 7:25AM
Here we go again. I guess they are looking forward to their next bailout by the taxpayers after first ripping off the consumers.
Nov 9, 2013 12:16PM

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.

Nov 9, 2013 10:26AM
This is the same crap that got us into this situation. People who don't deserve loans getting loans... Morons!
Nov 9, 2013 9:55AM
Why is it that POTUS Obama and democrats get all the blame for the bad economy DESPITE the fact that when Clinton was in office we had a balanced budget  surplus BUT when Buthead Bush got into office and took us into fabricated wars costing billions and lining his allies pockets we went into a deficit. When Obama took office we were heading off of the fiscal cliff (remember when Senator McCain wanted to suspend his presidential campaign and return to Washington to see if he could help with this mess?) Obama inherited this crap. When he went into office we were heading into a depression. Obama can't fix a mess he inherited in less time than it took to create it, especially with the Tea Party saying NO, even to things they were once for (go figure) and the rest of the GOP too cowardly to stand up to their stupidity. I am an Independent and both parties have good and bad but common sense has to be added into the equation.
Nov 9, 2013 9:41AM
About time.  Now, maybe I can get a loan to buy a house.
Nov 9, 2013 9:29AM
Yup, the feds want this to happen.. no 20% down, poor credit,  give the loans but when you do and we have another problem the feds will sue you again for billions. If the banks are smart they will not lower the requirements and save themselves billions later on.
Nov 9, 2013 8:41AM
We haven't come back from the Dodd-Frank mortgage disaster which is still affecting the economy.  Here we go again.
Nov 9, 2013 8:21AM
Hey hunny, now we can buy a two bed room, 600 sf. home, with a swing...yahoo!!!
Nov 9, 2013 8:16AM

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.

Nov 9, 2013 8:07AM
GREAT  NOW     we   can   buy   our   dream   home   we   much   better   now   ya   right   realy   realy
Nov 9, 2013 7:33AM
I guess the last crash wasn't good enough for them.
Nov 9, 2013 7:31AM

Maybe now I will be able to sell my house and get out from an under water loan.

Nov 9, 2013 7:08AM
 Why with the lowest labor participation rate since 1978 47 million on food stamps how else is Obozo the socialist clown going to claim recovery? Good day you drooling stupid democrat voters!
Nov 9, 2013 6:45AM
Sounds like its bubble time again.  
Nov 9, 2013 6:35AM
"How can we keep making the same mistakes over and over, " you ask?  For those who control the financial machinery, these are not mistakes, but opportunities.  The rest of us are merely sheep to be sheared periodically. 
Nov 9, 2013 6:29AM
Great, Here we go again! Lets give home loans to people that can't afford the payment. Maybe a few credit cards as well.
Nov 9, 2013 6:02AM
how stupid...let's repeat history again and see if it will be different this time...DUH
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