Mortgage Availabilty: Is it Loosening or Getting Tighter?

Blogs and newswires have had an ample amount of stories about whether mortgage credit is loosening or tightening.

On the loosening side is the Federal Reserve Board’s most recent “Quarterly Senior Loan Officer Survey,” released in August, that reports a moderate fraction of banks had eased their standards on prime residential mortgages during the second quarter. But HousingWire’s Trey Garrison wrote that findings by Merrill Lynch Global Research analysts suggest the opposite was true. The analysts noted that upon examining the FICO score trends of actual purchase mortgages closed on a monthly basis, they found aggregate credit scores for purchase mortgages moved higher.

“We think the explanation of the difference is that while FICO trends are lower in all financing channels (such as conventional and government), the highest quality channels are increasing share of mortgages closed, hence the aggregatescore is rising,” the analysts wrote.

Housing and real estate analysts John Burns and Ivy Zelman suggest that credit is not as tight as many builders think it is.

Burns, founder of John Burns Real Estate Consulting, Irvine, Calif., noted during a recent Professional Builder Housing Giants Leadership Conference in Dana Point, Calif., that credit availability is tighter compared with 2000-03 but looser versus a couple decades ago.  For example, 21 percent of all mortgages during 2013-14 were issued to borrowers with a debt-to-income ratio greater than 42 percent, compared with 5-to-10 percent in 1990-92 and 28 percent in 2000-03. The median FICO scores for approved borrowers in 2013-14 ranged between 735 and 740 compared with 739 in 1990-92 and 701 in 2000-2003. While just 5 percent of mortgages during the most recent period went to buyers with credit scores below 640, that’s not far from 9.5 percent in 1990-92.

Zelman, chief executive officer of Zelman & Associates, New York, said during her conference presentation that mortgage availability is better than numbers from the Mortgage Bankers Association suggest, partly because mortgage companies and nonbanks are jumping into deals where the banks are not. First-time homebuyers are not a robust market now, but they are participating
more than people think, making up 52 percent of loans backed by the three government-sponsored enterprises. The enormous load of college loans often is cited as the reason Millennials will be renting or living at home longer, but Zelman said one-third of the $8 billion in college debt is held by people over 40 who are going to school to enter new careers. Nearly a quarter of Millennials will be debt-free next year. Among 25-to-29 year olds, 46 percent of that age group living with their parents
is fully employed. That figure is 55 percent among 30-to-34 year olds also ostensibly living at home to save money that could be used for a mortgage down payment in the near future.

“We see a lot of housing food chain components pointing in the right direction,”
Zelman said.

This article was originally written in the November 2014 issue of Professional Builder.
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