As a sign of mortgage lenders’ rising confidence in the housing market, restrictive lending standards are beginning to ease, and the credit freeze is starting to thaw. Lenders have started to accept lower credit scores and to reduce down-payment requirements.
Making sense of the story
- Lenders recognize that refinancing old mortgages will no longer be a huge profit center for banks, so competing for borrowers will be needed for business and future profits. As a result, lenders will have to open up to borrowers who may not have perfect credit or large down payments.
- For example, the lender TD Bank began accepting down payments as low as 3 percent through an initiative called “Right Step” for first-time buyers. A year ago, the program required at least a 5 percent down payment.
- Mortgage originations are expected to reach $1.1 trillion this year, which is down from $1.8 trillion last year and $2 trillion in 2012 due to less refinancing.
- While private lenders have shied away from low-down-payment mortgages in the past few years, in the past year, more than one in six loans made outside of the FHA included down payments of less than 10 percent.
- Credit scores for borrowers seeking conventional mortgages also are easing, as scores on purchase mortgages stood at 755 in March, down from 761 a year earlier.
- Smaller lenders are trying to appeal to first-time buyers while many larger lenders are gradually reducing down payments for jumbo loans in order to attract wealthy customers.
courtesy of: http://online.wsj.com/