Good news for potential home shoppers: A Mortgage Bankers Association index shows lender requirements regarding credit scores, down payments, and other key terms are finally loosening up. Some lenders are even expanding the types of mortgages they offer. These moves come after years of lenders tightening loan requirements in the aftermath of the housing crisis.
The Opening of the Credit Box
The newly-released MBA index shows that recent improvements in lending are mostly tied to the government’s efforts to ease regulations and improve affordability in the housing market. For example, mortgage financing giant Fannie Mae is now allowing purchases of conventional mortgages that have down payments as low as 3 percent; Freddie Mac is planning to do the same for mortgages closed on or after March 23.
Also, the Federal Housing Administration, which insures loans with down payments as low as 3.5 percent, reduced its upfront mortgage insurance premiums last month, which is expanding eligibility for home purchases to thousands of potential home shoppers.
“Things are looking better for home buyers and refinancers,” not just in the loosening of underwriting requirements but also in the cost of credit, says Brad Blackwell, executive vice president of Wells Fargo Home Mortgage, the nation’s largest mortgage originator based on volume.
Blackwell says that Wells Fargo has been gradually opening its credit box as the government has taken steps to clarify its lending policies and penalties against lenders for defaulting loans. That has helped lenders gain confidence to expand lending to a broader range of borrowers, including those who may not have high credit scores or a sizable down payment for their home purchase.
Wells Fargo says it also has relaxed its policy on down payment gifts to borrowers from relatives and friends. Wells Fargo previously required borrowers to contribute at least 5 percent of the total costs on a home purchase from their own finances in order to qualify for a conventional loan with a 5 percent or lower down payment. The bank giant recently reduced that requirement to 3 percent, allowing for greater gift assistance.
Source: “Lenders Begin Easing Requirements to get a Mortgage,” The Los Angeles Times (Feb. 22, 2015)