The housing market may be on fire, but the lending environment is tougher than ever.
Wary of making risky home loans during the pandemic, lenders have tightened standards, particularly for first-time homebuyers, reported the Wall Street Journal.
Overall, mortgage credit availability — an indicator for lenders’ willingness to issue mortgages — is at its lowest level since 2014, according to the Mortgage Bankers Association.
Data from the Federal Reserve Bank of New York show just how tough it is to get a loan without stellar credit. Last year, 70 percent of mortgages went to borrowers with credit scores of 760 or more. That was up from 61 percent in 2019.
Last year, mortgage rates plunged to historic lows, encouraging would-be buyers into the market and spurring refinancings. (Rates have since gone up.) But the availability of loans dropped 35 percent year-over-year as lenders tightened standards to avoid lending to buyers with shaky finances.
Some lenders have asked borrowers to swear off forbearance. Others are asking that pay stubs and other documents required to get a mortgage be no older than 30 days.
“In one week last spring, jobless claims were in the millions,” Tendayi Kapfidze, chief economist at LendingTree, told the Journal. “A borrower who was fine one week could be a much riskier borrower the next week.”
[WSJ] — E.B. Solomont