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Mortgages Are Getting Easier to Land, but Home Ownership Lags

May 26th, 2015 10:08 AM by Jackie A. Graves

It was easier to get a mortgage loan in 2014 than it's been in years. So why aren't people buying homes?

FILE - In this May 14, 2014 photo, a new home is for sale in the Winthrop subdivision in Riverview, Fla. Freddie Mac reports on average U.S. mortgage rates on Thursday, April 23, 2015. (AP Photo/Chris O'Meara, File)

Mortgage restrictions have eased, but people still aren't flooding into the housing market.

Lending restrictions relaxed in 2014, allowing would-be homebuyers to more easily secure a mortgage, according to a report issued Thursday by Zillow real estate database. But landing a loan to buy a home today isn’t nearly as easy as it was before the housing bubble burst.

Zillow’s Mortgage Access Index released Thursday serves as an indicator of how easy or difficult it is for potential homebuyers to acquire a mortgage. The index shed about 3 percent between the third and the fourth quarter of 2014 but was ultimately up almost 36 percent year over year.

“We saw essentially a pause in the pace of the improvement of credit conditions, where we have seen really remarkable recovery in credit conditions since their low point in 2010,” says Stan Humphries, chief economist at Zillow. “It is extremely unlikely that we’ll get back to the credit conditions that prevailed in the 2004 to 2007 period of time, but that’s probably a good thing. I think most analysts agree at this point that credit conditions were too loose at that point in time.”

[MORE: Home Price Gains Outpace Wage Growth]

Humphries predicts the U.S. is heading toward a new normal in terms of mortgage accessibility. Lending patterns are heading in the right direction, but its unlikely banks will be vehemently giving away home loans anytime soon.

The housing collapse of the late 2000s burned banks that loaned to people who couldn’t meet their mortgage payments, and loan restrictions tightened. But many private lenders lowered their minimum credit score requirements in 2014, providing more access to conventional home loans.

A December 2014 report from mortgage software provider Ellie Mae found that the average FICO credit score for all closed loan applicants in 2014 was 726, down from 2013’s 738.

“You saw more willingness for Fannie and Freddie to lend to lower credit score individuals,” Humphries says, referencing mortgage giants Freddie Mac and Fannie Mae. “Before, [homebuyers’] only option would have been FHA, which would have been an option for them, but a more expensive option.”

[MORE: Home Sales Surge Despite Changing Buyer Demographics]

Homebuyers with less-than-perfect credit often turn to government-backed Federal Housing Administration mortgage plans, which are more accessible than conventional private loans but can end up being more expensive in the long run. While a “good” credit score for landing a private loan would typically be around 680 or better, what’s considered “good” for FHA loans is significantly lower. However, some of these loans require private mortgage insurance, which can raise the monthly payment.

“Generally speaking, to get maximum financing on typical new home purchases, applicants should have a credit score of 580 or better,”according to the FHA’s website, though it notes certain options for credit scores as low as 500.

But easier access doesn’t seem to be immediately translating into an uptick in the percentage of Americans who own a home. The first quarter homeownership rate fell to its lowest level in 25 years, according to a report Tuesday from the Census Bureau. Rental vacancies are still historically low, and the cost of rent has skyrocketed in recent years, especially in thriving metropolitan regions.

[ALSO: Major Metros Set Job Growth Pace Post-Recession]

“Banks, at least currently and through this cycle, have been more stringent on their lending guidelines for the first time buyer. Whereas in the prior cycle, they were much looser, which got them into trouble,” says Matt Kaufler, portfolio manager at Federated Investors. “But that discipline, which has helped the quality of their portfolios, has kept a lot of people from being able to convert from rentership to ownership.”

Humphries says people are paying more for rent in some areas than they would if they had a monthly mortgage payment. But rental costs constantly draining on bank accounts inhibits renters from saving up for the initial costs that come with buying a house.

“What I fear has set in is a negative dynamic where those rents are so high and income growth has been so tepid that people can’t accumulate the savings for the down payment and the closing cost in order to effect that transition from the rent line into the ownership line,” he says.

By Andrew Soergel | To view the original article click here


Posted by Jackie A. Graves on May 26th, 2015 10:08 AM


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