Mortgage Requirements Are Loosening for Prime Borrowers

A recent Federal Reserve survey of domestic loan originators shows that out of more than 70 banks within the US, most are loosening their mortgage lending standards—more in the last quarter than at any time during the last 10 years.  This survey, conducted once per quarter by the Federal Reserve, ascertains what the national lending environment looks like for both commercial loans and residential loans.  Its purpose is to gauge the current lending environment to see how willing banks are to make loans to customers, considering the present economic climate.

One of the questions asked on the survey concerns “prime residential mortgages,” meaning mortgages requested by borrowers who have a 740 or higher credit score.  According to the responses by the lenders, prime mortgage guidelines have eased in 14.5% of the banks surveyed, and only 7% responded that they had tightened their guidelines for borrowers in that bracket.  Although 14.5% might seem insignificant, it represents the highest number of banks who have decreased lending standards for prime residential borrowers in almost a decade.

Additionally, the survey showed that the demand for money mortgages is increasing.  In fact, 65% of lenders who responded said that they saw steady or increasing demand from U.S. consumers for purchase loans in the last quarter, compared to the quarter before.  So it’s not just home loans that are seeing greater demand and less strict lending standards.

Even though mortgage rates surged in September, the National Association of REALTORS® have released their numbers showing that existing home sales were over five million units on a seasonally-adjusted, annualized basis for five months and counting.  The rising rates, however, might be responsible for the results from the survey that 1 in 5 banks are seeing an increase in consumers applying for “piggyback loans,” which are popular for homebuyers who don’t have 20% to put down on their home when making the purchase.