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