(This is an excerpt from an article I originally published on Seeking Alpha on May 27, 2013. Click here to read the entire piece.)
In December of 2012, I provided a description of the housing recovery from the eyes of mortgage investors who could see the recovery but worried about tightening credit conditions. Six months later, it seems things have actually gotten worse, at least for borrowers with lower credit scores.
{snip}… The data show that at the same time the housing market is finally recovering from the last recession, credit conditions continue to tighten. In particular, borrowers with lower credit scores are not qualifying for home loans. The answers in SLOOS suggest that these numbers reveal a tightening and not just a lack of demand for these loans (Duke notes that the hard data on making a conclusive assessment are not yet available). From SLOOS:
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Roughly one-third of banks also responded that they were less likely than a year ago to approve an FHA-insured home-purchase loan with a FICO score of 580 or 620 and the FHA minimum down payment of 3.5%.
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Of course, the good part of this story is that the housing recovery is getting built on a foundation of creditworthiness. {snip}
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A normal recovery should show an extension of credit down the ladder as financial institutions become more confident in the strength of the job market, income levels, and the stability of the economy. Remember, the problem of loaning to borrowers with lower credit scores is NOT an inability to payback ANY loan but the greater discipline and attention to affordability that a lending institution must apply to making such loans. {snip}
A surprisingly high number of respondents from the banks appear to have very low expectations for the housing recovery. An unsurprisingly high number of these respondents are demonstrating strong tentativeness in the face of a changing and harsher regulatory environment. {snip}
Duke also notes that capacity constraints in the real estate lending industry are at least partly to blame for a contraction in credit conditions. {snip}
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Be careful out there!
(This is an excerpt from an article I originally published on Seeking Alpha on May 27, 2013. Click here to read the entire piece.)
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