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How hard is it to get a mortgage?

Depending on your circumstances, it’s not as hard as you may think

With each passing month, it is looking more and more like 2014 is going to be a subpar year for housing.

Earlier on Thursday, a new report from the U.S. Census Bureau and the Department of Housing and Urban Development showed that sales of new single-family houses plummeted in June to an annualized rate of 406,000, at least 20% below most analyst estimates.

Interest rates are still lower than last year, per Freddie Mac’s latest Primary Mortgage Market Survey, but mortgage applications have been trending down.

Tighter credit standards appear to be one significant stumbling block that is preventing prospective buyers from capitalizing on those low rates. 

Making credit more readily available has been the focus of several federal policy initiatives in the last few months. First, Federal Housing Finance Agency Director Mel Watt named maintaining credit availability as one of his main goals for the FHFA and the enterprises it oversees, Fannie Mae and Freddie Mac, in his first public address.

Then the Federal Housing Administration offered up its own plan to expand credit access. In its “Blueprint for Access,” the FHA outlined additional steps the agency would be taking to bring credit to “underserved” borrowers.

And several weeks ago, U.S. Treasury Secretary Jacob Lew announced initiatives designed to stimulate the slumbering market. One of the specific plans Lew highlighted was a push to expand access to credit by working to revive the private-label mortgage-backed securities market.

He described the private-label securities market as “dormant” since the financial crisis. Lew also said that the Treasury will be publishing a “request for comment,” in an effort to “help us better understand what we can do to encourage a well-functioning private securitization market.”

Lew said the administration also plans to host a series of upcoming meetings with investors and securitizers to further explore ways to increase private lending.

Despite the potential governmental influence, folks in the industry are all wondering why 2014 is shaping up to be so weak.

Over at the Wall Street Journal, Nick Timiraos asks how hard it really is to get a mortgage. He pulls in analysis from Goldman Sachs and others.

Goldman’s analysts measured lending standards across several categories, including credit score, loan-to-value ratios, mortgage spread and others.

Only in one of the seven categories does Goldman find that credit standards are less restrictive than before the bubble: Average loan-to-value ratios, which are primarily a function of a borrower’s down payment, are slightly higher. While no-money-down lending programs have largely disappeared, the Federal Housing Administration will insure mortgages in which borrowers have made just 3.5% down payments, and those programs have been incredibly popular in recent years.

But wait a minute. If it’s possible to get a mortgage with a 3.5% down payment and a credit score in the mid-600s, how could anyone say that credit is still tight?

Timiraos identifies two distinct segments of potential borrowers. One can get credit fairly easily while the second group has a significantly more difficult time.

As a result, the market has bifurcated. Wage earners who have decent credit, stable and easy-to-verify incomes and who are seeking loans on simple single-family dwellings can qualify for FHA-backed loans with the minimum 3.5% down payment. Getting a mortgage for this group of buyers might be easier than is commonly believed, although FHA mortgage insurance has become more expensive.

When people talk about “tight credit,” they may instead be referring to a second group of borrowers. These are people who may have irregular or harder-to-document incomes: A salesman who earns a lot of his income in commission; a consultant who had meager income two years ago; or a small business owner who took lots of tax deductions to lower her taxable income. This group also includes buyers of condominiums or other harder-to-underwrite properties. And it could include retirees who have meager incomes despite having lots of assets.

So for those in the first category, getting a mortgage isn't that hard after all. For the second group, it's pretty hard. And maybe that's what holding 2014 back.

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