By John W. Schoen, Senior Producer
Home prices
have fallen by a third since 2006, creating tremendous bargains for home
buyers. Mortgage rates are at rock-bottom lows, making houses more affordable
than they have been in decades. Yet home sales last year fell to the
lowest levels since the government began keeping records in 1963.
One big reason is that mortgage
bankers have gotten a lot choosier about who they’ll approve for a loan,
according to a report by Goldman Sachs economists Hui Shan and Jari Stehn. By
some measures, they're pickier than they were before the housing boom took off.
With anecdotal evidence showing that home mortgages are
harder to get, the economists crunched Federal Reserve data
to show just how much tighter lending standards have become. Using the results
of the Fed's
survey of loan officers, the report found that lending standards
rose sharply after the mortgage market collapsed and the financial system
imploded in 2008. Since the recession ended in 2009, lenders haven’t eased
their tight grip on mortgage money.
Part of the
reason is that there’s less money available to lend. During the housing boom,
as brokers produced a flood of new mortgages, Wall Street bankers churned out a
torrent of mortgage-backed bonds for investors waiting to snap them up. That
market has all but vanished; 90 percent of new mortgages written today are
backed by the government.
The new
mortgage pipeline also has slowed because it is clogged with paperwork. These
days, you’ll have to fill out many more forms and produce a lot more
documentation, on average, just to get your loan considered.
The percent of
loans that required “full documentation” declined steadily from 2000 through
2006, hitting a low of less than 60 percent. Those “no-doc” loans were a big
part of the reason mortgage bankers made the bad underwriting decisions that
created the mortgage mess. Today, nearly 90 percent of mortgage applications
require full documentation. That’s much higher than the pre-bubble level.
You’ll also
have to show a much higher credit score than you did in the go-go days of the
housing boom. In a separate report, Mortgage Marvel, an online
mortgage-shopping website, analyzed data from more than 700,000 mortgage
applications filed last year and found that the average FICO score was 730.
That’s a significant jump from the days when borrowers with scores in the high
500s were routinely steered to high-cost subprime loans.
Applications
with highest credit scores concentrated in California, Oregon, Wisconsin,
District of Columbia and Hawaii, the company said. The states with the lowest
credit scores were Mississippi, Arkansas, West Virginia, Louisiana and
Oklahoma.
