Home prices might be going up and the economy may be strengthening, but that doesn't mean lenders are making it any easier for borrowers to get a mortgage. In fact, mortgage originators say underwriting guidelines are getting even tighter rather than looser.
The Federal Reserve recently said that owners’ equity in residential real estate rose to $8.2 trillion in the fourth quarter of 2012 from $6.6 trillion a year earlier, mainly due to rising home prices. Owners’ equity as a percentage of total real estate jumped to nearly 47%, the highest since the first quarter of 2008.
But that equity cushion apparently isn't enough to give lenders more comfort in approving mortgages. Federal Reserve Gov. Elizabeth Duke recently said that lending conditions in most areas of the economy have gotten better recently—everywhere but mortgage lending, that is.
"Mortgage lending is a place where credit conditions really have not loosened at all—they’ve not loosened in the least bit," she told the American Bankers Association.
Lenders interviewed by National Mortgage News are saying much the same thing.
"There's been a lot of chatter about the loosening of credit but I haven't seen much of it," says Greg Cook, a senior loan officer at Platinum Home Mortgage in Temecula, Calif. "Fannie Mae did loosen the minimum credit score requirements for their high-balance product, but that's about it. So much of what lending is today is based on overlays. While Fannie, Freddie, FHA and VA may have loosened their guidelines, most lenders have not. Frankly, lenders are hesitant to do so because of the onerous buyback agreements they signed."
"We as lenders got burned when the last housing bubble burst and aren't likely to go down that path again until we're positive this recovery is sustainable," he says.
Some originators say they've seen some loosening of credit guidelines, but lenders are getting more strict when it comes to borrowers' income.
"Sadly, the lending requirements for most potential buyers continue to be oppressive. Income remains the principal problem for loan approvals, and big banks in particular are not lending unless applicants have superior credit and substantial income. I am seeing that income requirements are tougher than credit requirements," says Gloria Shulman, founder of Centek Capital Group, a mortgage broker in Beverly Hills, Calif.
"President Obama needs to use his bully pulpit to convince the big banks to loosen lending requirements, and until that happens, all the government programs imaginable will only have a limited positive impact," she says.
"Over the last few months, we've seen credit requirements loosen, but it's hard to put a finger on the cause, whether they were loosened because the market improved or if there were other factors," says Patrick Ruffner, vice president of mortgage lending at Guaranteed Rate in Chicago. "However, debt-to- income ratios and overall scenarios appear to be getting a little tighter."
Ben Cowen, president of BOK Financial Mortgage in Tulsa, Bank of Oklahoma's mortgage unit, sees no let up ahead either as new federal Dodd-Frank mortgage underwriting guidelines kick in.
"You would normally see some credit relaxation with lenders having more confidence in home values," he says. "However, the upcoming regulations will not only keep mortgage credit tight, they will tighten it further."
"We are not contemplating any loosening of credit and, in fact, are worried that we may be forced to tighten credit in preparation of" the qualified mortgage regulations, he says. "There are questions regarding loans that were intended to be sold to the GSEs that have loan defects. The consequences of producing an unsellable loan will now be increased with the possibility of the loan also being classified as an unqualified mortgage. This will force lenders to focus more on loan quality and avoid exceeding underwriting and investor guidelines."
Cowen noted that the QM rules do not take into consideration the collateral or the loan-to-value ratio on a loan.
"Removing this from consideration or as a compensating factor will obviously result in declining more loans," he says.
George Yacik has been covering the residential mortgage business for more than 20 years and writes frequently for industry publications. He can be reached at firstname.lastname@example.org.