Major Banks Mortgage Guidelines Starting To Loosen- Interest Rates on the Rise

Fed Lending Guidelines Q4 2010Mortgage lending appears to be loosening. At least for now.

In its quarterly survey of member banks, the Federal Reserve asks senior loan officers around the country whether their “prime” residential mortgage guidelines had tightened within the last 3 months.

A prime borrower is one with a well-documented credit history, high credit scores, and a low debt-to-income ratio.

Of the 54 responding banks, just 2 said its guidelines had tightened during the period October-December 2010. That’s less than 4 percent. And, by comparison, 95 percent of banks said guidelines remained “basically unchanged”.

The remaining banks reported a loosening.

It’s a positive sign for the housing market, and for home buyers in Pleasanton as well as the entire state. If banks have stopped raising the hurdles of home loan approval, in theory, more would-be buyers will be approved.

It’s much tougher to get a home loan versus 5 years ago. Delinquencies and defaults have changed how banks review loan applications. Today’s underwriters are more conservative with respect to household income, total assets and overall credit scores.

Even as compared to January 2010, approval standards are higher :

  • Minimum credit score requirements are higher
  • Downpayment/equity requirements are larger
  • Maximum allowable debt-to-income ratios have been lowered

Although mortgage rates remain historically low, qualification standards do not. Based on last quarter’s banking survey, however, mortgage applicants in California may find approvals easier to come by soon. Low rates don’t matter, after all, if you’re not eligible to get them.

The housing market is strong and lending looks to be loosening. It should help fuel the demand for homes in 2011, which will push supplies down and lead prices up. For homeowners that qualify, therefore, the best time to purchase a home may be sometime this spring.

Rates Are Still Climbing Long-Term in to Spring Buying Season

You can play this market in one of two ways:

  1. Take the bird-in-hand; lock your mortgage rate now.
  2. Gamble on the future; wait for rates to drop more.

It’s a big risk to plan for lower rates and gamble into the Spring.

Within a few weeks, fixed mortgage rates should settle in the mid-5 percent range, with ARMs in the high-4s. Then, toward the end of 2011, they’ll likely be closer to historical norms in the 6s and 7s. Especially as the U.S. economy kicks into higher gear.

Spring is just around the corner as well as the rest of the first time home buyer population looking to purchase a home while interest rates remain low. It would be a great time to give me a call to start the free pre-approval process. I may not be as fast as Geico in 15min or less; but I personally return all my messages and I look forward to helping you through the home buyer process.

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