Senior loan officers agree that it's harder to get a loan

Source: MarketWatch WASHINGTON (MarketWatch)

A new survey released by the Federal Reserve on Monday shows how much more difficult it is to get a mortgage now than it was before the housing bubble burst. In a special question as part of its first-quarter survey of banks’ senior loan officers released Monday, the Fed asked banks to compare their willingness to make mortgages today with their stance in 2006 at the dawn of the financial crisis. According to the survey, 43 of 52 banks surveyed said they were less likely to make a mortgage loan to borrowers with a FICO score of 620 and a down payment of 10% than they were in 2006. When the down payment was raised to 20%, 37 banks said they were still less likely to make the loan. Those with better credit still were facing tighter credit. When the borrowers FICO score was raised to 680 and the down payment was 10%, 36 banks said they were still less likely than in 2006 to make the mortgage loans. With a down payment of 20%, 15 banks were less likely to make the loan, while four were more likely to make it. At a FICO score of 720, there was a difference. With a down payment of 10%, 37 banks said their willingness to make the loan was about the same as 2006, though 12 banks were less likely to make the loan and three banks were more likely. When the FICO score of 720 and a down payment of 20%, five banks said they were less likely and six said they were more likely to make the mortgage, while 41 banks said the willingness to make the loan was about the same as 2006. The tightening standards come after U.S. home prices have dived roughly a third from their pre-recession peak. The tighter underwriting standards have helped to limit any price or transaction recovery in the housing market. More broadly, the senior loan officer survey showed that banks were loosening lending standards on credit cards and other consumer loans, with mortgages still being the exception. There was also increased demand for credit, the survey found, including demand for mortgage loans. “Overall, the improvement in domestic credit conditions provides a further boost to the outlook for the economic recovery as it could be a precursor of stronger consumer lending activity ahead,” said Millan Mulraine, senior macro strategist at TD Securities. U.S. banks are benefitting from reduced competition from ailing European institutions, the survey found. U.S. banks also tightened standards on loans to European banks but not by as much as in the prior survey covering the fourth quarter. European banks have tightened standards on business loans. The Fed survey covers 58 domestic banks and 23 foreign banks with branches and agencies in the country.

URL to the original article: http://www.marketwatch.com/story/fed-survey-shows-difficulty-in-getting-mortgage-2012-04-30

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