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06 May 13 Federal Reserve Survey Reveals Tight Lending Guidelines

A recent Federal Reserve survey revealed that banks and mortgage lenders are not planning on lightening requirements for borrowers seeking home loans and refinancing. According to WSJ, banks remain unwilling to loosen standards on home loans. Cash buyers and investors have been driving the housing recovery so far. If it is going to persist, it will need to include more buyers with home loans, economists say. Last fall, Federal Reserve Chairman Ben Bernanke said that  lending standards appeared to be “overly tight.”

Bernanke said the surveys showed that home loan lenders began tightening credit standards in 2007 and have not eased guidelines significantly since. In the latest senior loan survey, released on Monday, only a few American banks reported that they eased standards on fixed home refinance loans over the past three months. A large majority of the loan officers said that the “risk-adjusted profitability of the residential mortgage business relative to other possible uses of funds” was an important factor restraining residential real estate loans. Fear of “putback risk,” the risk that the insurers and mortgage buyers would force them to buy back bad loans, was another important factor.

A number of smaller banks indicated that they were even less likely now to approve a home loan with a FICO score of 620, depending on the down payment. Some more banks were likely to approve a loan application with excellent credit — a FICO score of 720 — and a 20% down payment. About a third of bank loan officers indicated that they were less likely to approve loans insured by the Federal Housing Administration with FICO scores of 580 or 620.

Read the original Market Watch article online.

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