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Why are credit standards so strict at present? Will loans be easier to get if mortgage rates go up?

by TTebow from Westchester, New York. May 6th 2013 Reply


William J Acres (William_Acres)
#1 ranked lender in Arizona - 5,012 contributions

risk vs reward... because of all the money lost from the defaults, lenders are gun shy... so they are padding their coffers now to offset their past losses.. as the economy recovers, I would expect some of the guidelines will ease up... I'm a Broker here in Scottsdale AZ and I only lend in Arizona. If you or someone you know is looking for financing options, feel free to contact me or pass along my information. 480-287-5714 WilliamAcres.com

May 6th 2013
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Joe Metzler (JoeMetzler)
#1 ranked lender in Minnesota - 2,549 contributions

I personally don't think mortgage credit is too tight today. The industry pretty much simply went back to old fashioned underwriting guidelines. Guidelines that I may remind everyone never resulted in any nationwide disaster. It is pretty simple, if you have a little bit of down payment, you have managed your financial affairs correctly, you have stable income, and you are looking to buy a house you can safely afford - you WILL get a mortgage loan today. If you can't properly document your income, you have poor credit, have unstable income, and don't have two pennies to rub together - you will NOT get a loan. Finally, if you have had a bankruptcy or foreclosure, you CAN get a loan again after a few years of credit rebuilding and successfully proving you are worthy again... In MN or WI, visit www.JoeMetzler.com

May 7th 2013
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Carlos Figueira (carlosfigueira)
#0 ranked lender in New Jersey - 177 contributions

The industry is still suffering from all the foreclosures and loans in default 90+ days behind. Simple answer is underwriting standards / credit standards will only improve once values increase and defaults are lower. There are many other factors but this is your basic answer.

May 6th 2013
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Carlo Sanchez (MortgageLendingPro)
#0 ranked lender in Utah - 1,163 contributions

These are set by the goverment agencies at FHFA for Fannie and Freddie. Write your congressment and women PLEASE!! FHFA announced last week that the average denial with with them has come DOWN from a 764 to a 743 with a DTI ratio of 35.7%!! Unbelievable but reality. FHA sets their own but they have the MI "Tax" on everyloan. Mortgages are all directed by these Governing bodies so PLEASE write your congress people.

May 6th 2013
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James Mazzola (Mazzola)
#3 ranked lender in New Jersey - 306 contributions

Maybe. But at this time they are looking for people who have the ability to pay for the debt they borrow. They are not interested in high risk loans

May 6th 2013
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Dave Metsker (DaveMetsker)
#1 ranked lender in Oregon - 2,068 contributions

High-risk loans were a major reason for the mortgage meltdown of 2007-2010. Lenders are slow to get in the same position again.

May 6th 2013
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Elden Lewis (elewis_409_299)
#40 ranked lender in Indiana - 190 contributions

The rates being high or low really have nothing to do with the tight credit. It's more about the losses that the mortgage industry has sustained over the past few years. A few years ago Fannie Mae & Freddie Mac went to what is called risk based pricing. That mean your credit score among other criteria will determine the rate you will get. The lower the credit scores the higher the rate. There is a little more to it than that but you get the idea. I think when the economy gets better you may see credit loosen up some. However, risk based pricing, unfortunately, is here to stay.

May 7th 2013
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Raymond Denton (Raymond)
#114 ranked lender in California - 222 contributions

Because the mortgage industry has been blamed for the national crisis. They said it happened because mortgages were too easy to get - you could get one if you could fog a mirror. Not anymore.

May 7th 2013
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Joe Shamie (Joe Shamie)
#1 ranked lender in New Jersey - 1,410 contributions

New rules have been imposed that now require the lender to measure the borrowers ability to repay. This "responsiblity" and the consequences of not following the new rules have caused lenders to tighten their creodt requirements. That said, this is about where the standards should have been in 2004-2007. If they had been, the financial crisis of 2008 would have much less painful for EVERYONE.

May 7th 2013
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Jason Vondrak (jvondrak)
#6 ranked lender in California - 1,522 contributions

The number of high risk loans that were given out prior to 2007 were essentially what caused the housing market to collapse. There was a large number of borrowers who were given loans that had poor credit scores, not enough income, a high debt-to-income ratio, etc. Many of these borrowers ended up defaulting on their home loans and could not pay them. As the economy continues to improve, lending standards might loosen up a little, but lenders have these strict requirements to protect themselves from borrowers.

May 7th 2013
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Steven Cook (stcookmortgage@gmail.com)
#43 ranked lender in Washington - 256 contributions

Joe has good answer -- and with the advent of "Qualified Mortgages" - as set forth by Congress, and interpreted by the new Consumer Financial Protection Bureau the lenders will be finding themselves on the line for any loans that don't meet the strict criteria being promoted. Look at it this way -- you, as a lender, loan someone $400,000 for a home, and you sell the note to someone else, so you have that money to loan to the next person who needs a loan. Under the new criteria, if that loan doesn't meet the rules set down, and the borrower doesn't makethe payments, you get to "buy back" the mortgage from whomever owns it when it goes bad. With that kind of "sword of Damacles" hanging around, the lenders are going to be very careful how they lend.

May 7th 2013
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Raymond Denton (Raymond)
#114 ranked lender in California - 222 contributions

They're strict because the mortgage industry has been abused in the past, and is in the process of recovering.

May 9th 2013
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