Don Rowe
Don Rowe Realtor/Broker
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Are Lending Standards Loosening?

Celia Chen, an economist for Moody’s Analytics, not too long ago reported on her forecasts relating to mortgage standards in 2013.   “The housing recovery started in earnest in 2012, regardless of constraints placed by a still-tight mortgage lending atmoshere,  This year promises improvements because the drivers of difficult credit requirements reverse".

property searchWhat does that mean for realty in Louisville? 

When doing your property search or Real Estate Search you can feel a little more confident in the fact that the mortgage industry is loosening. Very first, consumer credit scores are the highest priority and they are showing signs of improvement.  That will boost the volume of creditworthy borrowers. Second, lawmakers, regulators and courts are finishing the legal and regulatory problems that cast a shadow of uncertainty on the mortgage market. Combined with mortgage rates that will stay low, mortgage credit will likely be a lot more accessible to households this year, even though we will never see it lke it was, which is a actually a good thing.

On the banks side, simple straightforward credit decisions remains a lengthy way off as lenders loosen very gradually from really ridiculous requirements.  The share of loans originated for borrowers with the highest credit score has remained huge, averaging 82% inside the last two years, compared with 50% in 2005 and 2006. New regulations issued by the Customer Finance Protection Bureau in January preserve difficult mortgage requirements and keep credit tight, as lenders will likely need to completely document each and every borrower’s earnings, employment and assets irrespective of credit history.

Other regulations will efficiently ban loans with interest only or negatively amortizing payments.   Nonetheless, we see issues improving as we move through the year since there's significantly less danger for the banks now that home costs are once again appreciating.   Lastly improving home costs give lenders a lot more breathing space to extend credit. A lot more than the last 18 months, big lenders have relaxed or left requirements at least steady on prime loans that dominate mortgage originations.  

What Effect Will This Have for the Housing Industry?

No One Really Knows. Any 'Real Realtor" who think they can read tea leaves are guessing.  Do not take their word as Gospel. Although mortgages requirements will remain restricted, improvement in customer credit combined with steady advancement in jobs, low mortgage interest rates and slightly improving home costs implies a lot more households will likely be capable to qualify for any mortgage. Higher credit availability will in turn aid stronger house sales and stronger cost appreciation and aid in preserving preserve the housing industry and help the economy stay on an upward path.