During this housing crisis, mortgage-dependent buyers have been unable to play the sort of role in the latest recovery as they have in previous cycles because mortgage credit conditions for lenders have been tight.
But one economist sees signs that mortgage credit conditions are beginning to loosen. According to
For example, this survey reported a net balance of 8% of banks loosened mortgage credit conditions in the months to April. Even though this is not a large figure, credit conditions have now been either loosened or held constant in eight of the past nine quarters.
Additionally, 27% of banks said they intend to increase their residential mortgage assets over the next year, the SLOS revealed.
Another highlight from the survey shows that demand for mortgage lending has been strengthening, in which 39% of banks have seen a rise in the quarter to April. Also, the Mortgage Bankers Association index of mortgage applications for home purchases has increased in seven of the past eight months and is currently at a three-year high.
Meanwhile, data from Ellie Mae suggest that 60% of these home purchase applications in March were approved, which represents a 55% increase from a year ago.
Diggle said the most important factor constraining lending is put-back risk from the GSEs, followed by the profitability of lending and borrowers’ difficulty obtaining insurance. Diggle added that the
However, Diggle expects these constraints to fade and mortgage credit conditions to loosen further as the labor market continues its recovery.
“Nevertheless, credit conditions are undoubtedly still very tight,” Diggle said. “Banks are reluctant to make loans to those with anything less than healthy credit ratings. In most cases, lenders are also looking for a 20% deposit as well.”
