US requirements for mortgages are easing

Mortgage Bankers Association saw improvements in all 4 loan categories in January

TRD NEW YORK /
Feb.February 20, 2015 11:39 AM

A closely watched index that tracks mortgage credit availability — lender requirements on credit scores, down payments and other key loan terms — has some good news for potential homebuyers: Things are finally loosening up.

After years of progressively tighter rules on borrower eligibility in the wake of the housing bust, banks and mortgage companies have begun modestly easing their requirements and even expanding the types of mortgages they offer. The Mortgage Bankers Association’s latest credit availability index reported improvements in all four of its loan categories during January. The improvements mainly reflect positive lender responses to government efforts to ease regulations and improve affordability in the housing market — all of which means an improved environment for mortgage shoppers.

Among the initiatives: giant investor Fannie Mae’s resumption of purchases of conventional mortgages with as little as 3 percent down. Freddie Mac, another major investor, is planning to begin similar 3 percent down loan purchases for mortgages closed on or after March 23. According to Mike Fratantoni, chief economist for the mortgage banker’s group, “roughly 40 percent of investors” already have begun offering the Fannie 3 percent down program. The guidelines for the Freddie Mac program are in lenders’ hands and there’s likely to be a strong rollout for it as well.

Also contributing to better affordability: the Federal Housing Administration’s reduction late last month of its costly upfront mortgage insurance premiums, a move that could expand eligibility for home purchases to thousands of buyers, according to industry estimates. Virtually all lenders who work with the FHA program began offering the lower mortgage insurance premiums when the reduction took effect in late January. FHA insures loans with down payments as low as 3.5 percent.

Brad Blackwell, executive vice president of Wells Fargo Home Mortgage, the country’s largest-volume mortgage originator, is certain about what’s underway in the market: “Things are looking better for homebuyers and refinancers” — not only in terms of underwriting requirements but in the cost of credit as well.

Wells Fargo has been “gradually opening up the credit box,” Blackwell told me in an interview, in part because of helpful policy clarifications and changes at Fannie Mae and Freddie Mac. Those changes give lenders greater confidence in lending to a broader spectrum of borrowers, including those who don’t have high credit scores and ready cash for big down payments.

For example, he said, though the bank previously had a credit score minimum — 660 FICO on conventional loan applications — now it requires no hard and fast minimum. Instead, if Fannie Mae’s and Freddie Mac’s automated underwriting systems accept the application — say you’ve got a relatively low credit score but strong compensating factors such as solid income, ample reserves and a large-enough down payment — the bank won’t say no to you solely because of the low score. This could be especially important to people who had tough economic experiences during the recession that damaged their credit but who are now excellent candidates for a loan. On FHA applications, the bank will now accept FICO scores as low as 600, down from its previous 640 standard.

Wells Fargo also has relaxed its policy on gifts to borrowers by relatives and friends to defray part of the down payment and closing costs. On conventional loans with 5 percent or lower down payments, Wells Fargo previously required borrowers to contribute at least 5 percent of the total costs from their own financial resources. Now that’s been cut to 3 percent, which allows for more generous gift assistance.

Some major real estate firms confirm that they are seeing the first signs of credit easing by mortgage lenders, but that most potential first time and move-up borrowers are not yet aware of the changes.

Joseph Rand, a managing partner of Better Homes and Gardens Rand Realty and an affiliated mortgage company, Rand Commercial Services, in the New York City suburbs, says the improvements are not huge, but “it’s a welcome thing. Loan officers are excited about it.” Nonetheless, he told me last week, “it’s going to take some time” for the message to get out to renters and others who assume that the rules in the market would still preclude a loan approval.

Bottom line: If you’ve been stuck on the homebuying sidelines, check out what’s going on. Talk to lenders and mortgage brokers. Who knows — maybe the opening of the credit box, even if it’s just a crack, might be enough to help you buy a house at today’s near-historic low rates.


Related Articles

arrow_forward_ios
Mortgage industry chief gets some federal employees back to work with pay

Mortgage industry chief gets some federal employees back to work with pay

Mortgage industry latest real estate sector to express alarm over GOP tax bill

Mortgage industry latest real estate sector to express alarm over GOP tax bill

US condo financing program could be making a comeback

US condo financing program could be making a comeback

Banks lend aggressively on CRE despite downturn fears

Banks lend aggressively on CRE despite downturn fears

Better know a lobbyist: Q&A with Bill Killmer of Mortgage Bankers Association

Better know a lobbyist: Q&A with Bill Killmer of Mortgage Bankers Association

Placeholder image

Premium reduction is good news — but might be fleeting

Demand for mortgages in US fell substantially in Q4

Demand for mortgages in US fell substantially in Q4

WASHINGTON, DC - JULY 13:  U.S. Secretary of Housing and Urban Development (HUD) Julian Castro testifies during a hearing before the House Financial Services Committee July 13, 2016 on Capitol Hill in Washington, DC. The committee held a hearing on "HUD Accountability."  (Photo by Alex Wong/Getty Images)

FHA cuts mortgage costs for certain borrowers

arrow_forward_ios
Loading...