Zillow: Mortgage access remains a barrier to potential buyers

But wage stagnation, price growth plays a big role, analysts say

Access to mortgage credit tightened in the first quarter of 2015, according to the latest Zillow Mortgage Access Index.

It had been getting progressively easier to obtain a mortgage since 2012, but the first several months of this year marked a pause in easing access to mortgage credit.

Mortgage credit availability is almost unchanged from a year ago, meaning despite fluctuations from quarter-to-quarter, there has been little progress toward making mortgages easier to obtain over the last year.

In the long-term, experts expect mortgage access to continue improving.

"Recent market volatility is causing some lenders to be more cautious in their underwriting," said Zillow Chief Economist Svenja Gudell. "Tighter mortgage access will make it harder for people with low credit scores to get a home loan, and even people who can get approved for a mortgage will have fewer options in terms of available mortgage products." 

In a survey earlier this summer of more than 100 economists and housing experts, more than 60% said they expect mortgage regulations to loosen further, with many expressing concern the market will become too lax over the next year.

Zillow says that mortgage credit was easiest to obtain in July 2004, when the ZMAI reached 136.4.

Click to enlarge

(Source: Zillow)

But availability tightened over the next few years. In May 2007, both the housing and mortgage availability began a multi-year plunge, leaving home values down more than 22 percent and credit the tightest in recent history. Mortgages were the toughest to obtain in September 2010, when the ZMAI was at 11.8.  

While the housing market is facing challenges, Anthony Sanders, distinguished professor of finance at d, said that the real problem isn’t mortgage access, but other buyer problems.

“The Zillow Mortgage Access Index  simply states that underwriting standards have loosened and we already knew that from FHFA, Fannie and Freddie expanding their credit box,” Sanders tells HousingWire. “The elephant in the room is lower real median household income and wage growth.

“Banks/GSEs can relax all they want to, but if the number of potential borrowers is lower, the index is somewhat misleading,” Sanders says. “So Zilllow’s MAI is a supply-side indicator. The problem is on the demand-side.”

Logan Mohtashami, senior loan officer at AMC Lending Group, concurred.

“Standard are very liberal today like it always has been for 20 years — low down payment, low FICO scores, minimum requirements and gracious debt-to-income ratios,” Mohtashami tells HousingWire. “That isn't the issue with lending today.  The issue is that low FICO score Americans have a cash flow problem.

“People wonder why this group isn't buying homes. It's because they don't make enough money,” Mohtashami said. “Home buying is a multi year process with any individual, not done month-to-month data point, it's a process.”

The current minimum FICO score for GSE, Federal Housing and Veteran’s Affairs loans is 620, with a debt-to-income ratio up to 43%. VA loans can go up to 60% on exceptions, while GSE loans can go up to 45% in exceptional cases, Mohtashami notes.

3d rendering of a row of luxury townhouses along a street

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