Mortgages Slightly Easier To Get For Prime Borrowers, Still Tough For Subprime Applicants

Ten years ago, a potential home buyer could walk into a Countrywide office and get pre-approved for a half-million dollar home loan based on a bank statement written in crayon on a restaurant place mat and a pinky swear that the loan could be paid back. We all know too well the results of those lax standards, which is why regulators and banks ramped up restrictions on lending to the point where applying for a home loan is like auditioning for American Idol, without the washed-up celebrity appearances. But a new survey says that lenders are easing up… a bit.

The Wall Street Journal reports on the latest Federal Reserve survey of banks’ senior lending officers, and according to these in-the-know folks, around 10% of banks says they have eased some restrictions on lending for “prime” borrowers — those with credit scores of at least 720 and who could afford a down-payment of 20%. Consumers are also getting easier access to money through credit cards and auto loans.

It’s also easier for large and small businesses to obtain loans, though the larger banks say demand for commercial and industrial loans was down this most recent quarter. Banks also reported they continued to ease standards on loans to large and small commercial and industrial businesses as well as to consumers via credit cards and auto loans—though bigger banks said demand for commercial and industrial loans was lower.

But for people with that middling credit score range of 680 to 720, most banks surveyed say they have made no change in the standards put in place for vetting loan applicants.

Some are concerned that these restrictions are slowing economic recovery, as potential borrowers are unable to get home loans and take advantage of historically low interest rates. The lower interest rates would mean lower monthly payments, meaning that these borrowers would arguably be less of a risk than they were during times where the interest rate is higher, but yet they are unable to purchase a home.

At the same time, these consumers are getting easier access to credit cards and auto loans. On the one hand, prompt repayment of these lines of credit will ultimately aid the consumer’s credit history and score, but will it be fast enough for the borrower to strike while interest rates remain low? There is additional concern that credit cards and car loans are not the economic movers that home loans are.

In a slight silver lining, the Journal points out that a Zillow survey shows that the number of lenders willing to make a loan for only 5% or 10% down has almost tripled since 2010.

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