Lending

It’s not only appraisals, but lending itself that creates hurdles for potential homebuyers. Lending has certainly been tight in recent years, as a recent speech by Federal Reserve Governor Elizabeth Duke highlighted. One of the more vocal champions of lending reforms, Duke said in her speech that originations for borrowers with credit scores between 620 and 680 fell an astounding 90 percent from 2007 to 2012, while originations for borrowers with credit scores above 780 fell by 30 percent.

While the lending rates are not loosening, some of the changes made by lenders in recent years may prove permanent additions to the loan process. The standard has been raised to have more of a background and history of the borrowers’ info, and many loan officers don’t think that will change anytime soon. But despite the still-strict guidelines for loans, demand for mortgages has been on the upswing, particularly from prospective homebuyers looking to capitalize on record low interest rates. Are lenders responding in kind? Well, yes and no.

Lending standards are much more reasonable than they were at the height of the downturn, but they still have some way to go to catch up to demand. According to the Federal Reserve, lending standards have reportedly become less stringent, but demand for mortgages remain higher, due to loans still being difficult to obtain. In addition, the most recent Survey of Senior Lending Officers by Moody’s Analytics suggests that lending standards may be easing, albeit very slowly.

Though 82 percent of loans the past two years have gone to borrowers with the highest credit scores (compared to 50 percent in 2005 and 2006), the survey did show that over the past 18 months, large lenders either loosened or left intact their lending standards on prime mortgage originations.

This continues to be a challenge for people who do not have a very solid credit history. If a buyer has had late payments to creditors in the last 12 months, many lenders will not allow them to use a conventional loan. Buyers who do not have good credit normally might need to apply for an FHA loan at a slightly higher interest rate. According to Gaikowski, 90 percent of his homebuyers choose this option.

Powell is seeing things differently in the city. Being pre-approved and taking the necessary steps to demonstrate a buyer is pre-approved is imperative. “Buyers are having an easier time securing financing, and in multiple offer situations we are even finding buyers willing to pay the differential between their appraised value and their offer.”