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Mortgage Guidelines Don’t Tighten, But Don’t Loosen, Either


Mortgage lenders appear to be taking a Wait-and-See approach with new guidelines and restrictions

If the unfreezing of credit is paramount to an economic rebound, the first signs of a thaw may be here.

Monday, the Federal Reserve released its quarterly survey of 84 member banks. In it, the Fed says that fewer than half of its responding banks tightened “prime” mortgage guidelines over the last 3 months.

This is good news for active home buyers and other Americans in want of a new mortgage.

“Prime” is a vague term with respect to home loans, but it usually refers to mortgage applicants who can document:

  • Equity or downpayment in a home
  • Credit scores over 740
  • Excessive income versus debt

In looking at the Fed’s survey, we can infer that because less than 50% of banks made credit less available, more than 50% did not. Borrowing may not be easier for prime borrowers, in other words, but it’s not harder, either. Count this as a small victory for the housing market.

All of this said, however, guidelines remain restrictive.

In the 12-month period beginning late-2007, banks continuously clamped down on low credit scores, low downpayments, and high debt-to-income levels. In addition, Fannie Mae added new fees based specific loan traits and second mortgages practically vanished from the marketplace.

The cumulative outcome of these actions precludes many Americans from participating in the current Refi Boom. However, if the trend reported by the Fed continues, lending may open up a bit later this year, providing a boost to housing and to the economy.

Experts believe that the tightening of credit helped create this recession. The loosening of credit, therefore, may be the way out.

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