The Federal Reserve Board's Quarterly Senior Loan Officer Survey of credit conditions indicates that mortgage credit loosened in Q2 2014.
BofA Merrill Lynch Global Research looked at FICO score trends of actual purchase mortgages closed on a monthly basis, and they find the opposite is true: aggregate FICO scores for purchase mortgages continue to move higher.
“We think the explanation of the difference is that while FICO trends are lower in all financing channels (such as conventional or government), the highest quality channels are increasing share of mortgages closed, hence the aggregate score is rising,” BAML analysts say.
James Frischling, President of NewOak, weighed in Monday in a note to clients, and he says it’s too tight.
“The housing recovery continues to face challenges, and the imposition of stricter mortgage rules has created a very tight credit market. It’s of course understandable that banks should only lend to people that have the wherewithal to pay them back, but the obsessive focus on income, as opposed to assets or the overarching ability-to-repay, is going to shut many people out of the housing market,” he says in the note.
American Bankers Association’s chief executive Frank Keating spoke about some of the issues that are keeping credit tight recently, and he said that in addition to federal mortgage rules that are hindering the recovery and the importance of a strong jobs market, heavy student loan debt burdens will inhibit many from buying a home.
“Current mortgage rules have created a standardized and automated world of mortgage finance that borrowers must be able to meet, and have left banks little flexibility under the qualified mortgage/ATR rules,” Fischling says. “The concept of ‘character lending,’ which requires the lender to gain an understanding of the specific borrower, is dead."
Now even former Federal Reserve Chairman Ben Bernanke, who was recently turned down for a refinancing of his mortgage, says he feels the banks may have gone a little too far on mortgage credit conditions.
“The banks are being extremely cautious in response to the new mortgage rules and the mountain of mortgage litigation they’ve faced since the financial crisis. As a result, nonbank lenders will continue to find their place in the mortgage market because, even if bank credit standards are tight, the demand for mortgage loans remains high,” Bernanke said.