The bank lowered some downpayment requirements in Florida, Nevada, Arizona and Michigan because they will “no longer be considered distressed states,” it informed smaller lenders it buys loans from in July. The second-largest U.S. mortgage lender also loosened underwriting requirements for a refinancing program for Federal Housing Administration borrowers.
More than 10% of banks reported they loosened standards on “prime” or low-risk residential loans in recent months, according to the Federal Reserve’s July survey of senior loan officers.
Wells Fargo has relaxed certain credit standards and is requiring borrowers to put up less equity to buy high-priced homes.
The San Francisco-based bank began, on July 13, to offer nonconforming loans with a loan-to-value ratio of 85%, up from 80%, according to Tom Goyda, a bank spokesman. That means borrowers have to come up with less equity to get financing. The terms on the loans, which are too large for purchase by Fannie Mae and Freddie Mac, apply for new home purchases and refinancing, and don’t require mortgage insurance, Goyda said in an email.
“Getting approved for a home loan hinges on a borrower’s total financial picture,” Goyda said in an emailed statement. “We are always evaluating our credit standards in light of market conditions and trends.”
Goyda declined to provide further details on where Wells Fargo has eased underwriting restrictions.
JPMorgan removed a minimum 640 credit score requirement for the FHA’s streamlined refinancing program in May, enabling more borrowers to get new home loans at lower interest rates, according to spokeswoman Amy Bonitatibus.
JPMorgan CEO Jamie Dimon told investors in July that rising interest rates could trigger a “dramatic reduction” in the bank’s mortgage profits after mortgage fees and related revenue at the bank dropped 20% to $1.82 billion in the second quarter.
An increase in lending for home purchases won’t be enough to replace a drop in refinancings, JPMorgan CFO Marianne Lake said in a presentation at an investor conference this week. The bank’s pretax-profit margins and income on mortgage lending will be “slightly negative” in the third and fourth quarters as the firm takes time to adjust its fixed costs.
“We continuously review our lending standards to help families buy homes they can afford over the long term,” Bonitatibus said. “We have responded to improvements in the housing market by removing some additional requirements we put in place in hard-hit markets during the crisis.”
Bank of America has been easing underwriting standards in markets it designated as “soft” in certain parts of the country as the housing market improves, said Kris Yamamoto, a company spokeswoman.
In Florida, lenders including JPMorgan and mortgage insurers this year removed many of the additional requirements that had helped to push the share of cash buyers above 45% in the second quarter, said Rob Nunziata, co-CEO of FBC Mortgage LLC.
JPMorgan decreased the minimum downpayment on mortgages made in Florida for primary residences to 5% from 10% and down to 10% from 20% for second homes, according to Bonitatibus.
“Those restrictions have handcuffed Florida buyers,” Nunziata said, also referring to mortgage insurers and banks. “When you had restrictions telling buyers they had to put down an extra 5% to 15% in some cases, that eliminated a lot of potential buyers from qualifying.”
Mortgage insurers that restricted coverage during the housing crisis, including MGIC Investment Corp. and Genworth Financial Inc., have eased underwriting guidelines this year as the market improves.
During the crash, borrowers in California, Florida, Nevada and Arizona needed a credit score of at least 700 and could have a maximum loan-to-value ratio of 90% to qualify for mortgage insurance with MGIC, said Sal Miosi, vice president of marketing at the Milwaukee-based firm.
Last month, the third-largest U.S. mortgage insurer limited rules so borrowers whose loans qualify for purchase by Fannie Mae or Freddie Mac with credit scores of at least 620 and a loan-to-value ratio up to 97% can get insurance coverage, according to Miosi.
Additional restrictions “weren’t contributing to the credit quality, they were just adding to complexity,” he said.
Genworth Financial Inc., the fourth-largest mortgage insurer in the country, broadened credit guidelines in the first quarter of 2013 and reduced pricing, Rohit Gupta, chief executive officer of the company’s U.S. mortgage insurance business, said in an e-mailed statement.
Banks are still taking a cautious credit posture, according to David H. Stevens, CEO of the Mortgage Bankers Association.
“You’re starting from a very narrow market, so any expansion wouldn’t go near the reckless lending practices of the early 2000s,” he said.
A decrease in access for interest-only loans and those with terms longer than 30 years led to a slide in a Mortgage Bankers Association measure of loan availability last month.
Those types of loans are less attractive to banks as planned rules created by the Consumer Financial Protection Bureau to curb abusive or risky lending kick in next year.
Credit has been loosening faster for the wealthiest Americans, since bigger loans are mostly put on bank balance sheets instead of packaged into securities that get sold to investors. Applications for jumbo mortgages of at least $729,000 increased 59% in the first four months from a year earlier. Loans of less than $150,000 fell by 2.1%, according to the MBA.