Why mortgage lenders are of two minds about extending credit
Greater consumer access to credit could help mortgage bankers replenish originations eroded by higher rates, but they are reluctant to depart from the status quo to provide it.
"Rising interest rates and inflation, when combined with today's inventory shortage, are accelerating home price appreciation, causing some lenders and consumers to explore less-tested methods for financing home purchases," Rohit Gupta, Genworth Mortgage president and CEO, said in a press release.
But most lenders and consumers still prefer financing that is "backed by tested, well-capitalized businesses," he said.
While higher rates were considered the top challenge by almost half of companies surveyed by Genworth at a recent Mortgage Bankers Association conference, almost one-third of respondents consider the emergence of alternative mortgage products to be a key hurdle. Almost 20% are concerned about looser credit standards.
Mortgage bankers also are particularly concerned about a recent trend toward raising nonmortgage debt-to-income levels in order to qualify more borrowers for mortgages.
More than 90% of respondents want to see other underwriting requirements tightened or otherwise adjusted in a way that would offset debt-to-income levels above 45%, according to the survey. Only 18% called higher DTI limits a way to provide increased credit access without additional risk.
But if deregulation continues, mortgage lenders may be quicker to loosen underwriting.
The optimal way to broaden access to credit would be to remove legal uncertainty for lenders originating government-insured Federal Housing Administration loans, according to 44% of respondents. Lower compliance costs (30%), alternative credit scores (14%) and more ambitious affordable housing goals at Fannie Mae and Freddie Mac (12%) also would broaden credit access, other respondents said.