One area of relief
coming to home buyers across the country appears to be the lowering of credit
standards necessary to get a home loan.
Wells Fargo, the largest mortgage lender in the U.S., a couple weeks ago cut
its minimum credit score for borrowers of Fannie Mae- and Freddie
Mac-backed loans to 620 from 660.
According to Bloomberg, Wells Fargo followed similar moves by smaller lenders, including the U.S. unit of Canadian Toronto-Dominion Bank, which lowered downpayments to 3% without requiring mortgage insurance for some loans.
The news is noteworthy because it opens up borrowing capacity for many who had been shut out in the years following the housing downturn. When the foreclosure wave started to hit, banks tightened up borrowing requirements to protect themselves from foreclosures and short sales, which for several years were eating up resources.
But now that the refinance boom has severely dried up, more lenders are looking to court purchase loans from home buyers.
Also contributing to this move is a recent drop in demand for mortgages, which we believe stems from a lack of homes for sale, increasing home values that are pricing out a lot of borrowers in markets throughout the country, and a larger presence of all-cash investors. In April, Mortgage Bankers Association Chief Economist Mike Fratantoni lowered his forecast for home purchase loans in 2014 to $626 billion from $652 billion last year.
What does this news mean for buyers and sellers?
On the one hand, it's good to hear that more borrowing options will be open for home buyers this year. Lower credit scores don't always equate to reckless borrowing. On the other hand, this is a clear sign that lenders are in need of more loan business. We may see more consolidation in that industry as a result.
Bloomberg reports that only 58% of independent mortgage banks and bank home-loan units were profitable in the last quarter of 2013. And JPMorgan Chase, the second largest mortgage lender in the U.S., said last month that its origination business lost money last quarter and would also lose money in the second quarter.
For the coming year, it looks like buyers will at least have an advantage when it comes to getting a loan. That doesn't help the inventory shortage situation, but provides one small area of relief.
Written By Gino
Blefari
President & CEO Intero Real Estate Services, Inc. |
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