Not only is it harder to get a home loan today than it was during the height of the housing boom when lending standards went out the window, but it is also harder to get a loan today than it was before the boom, when mortgage underwriting was relatively conservative.
That is, according to a new report from the Urban Institute. How much harder? Researchers there claim that 4 million more loans would have been made between 2009 and 2013 if lenders had used the same standards as were used in 2001.
"The borrower's FICO score has become much more important in terms of who can qualify," said Taz George, a research associate with the Urban Institute. FICO measures a borrower's creditworthiness.
The report looks specifically at FICO scores (borrowers' credit ratings from a low of 300 to a high of 850, as gauged by Fair Isaac Corp. and commonly used by lenders).
Less than 40 percent of borrowers in 2013, using their loans to purchase a home, not refinance, had FICO scores below 720. In 2001, more than half did.
"When you look at more moderate credit score borrowers, those with a FICO of between 660 and 720, that's a score that in a year like 2001 we would consider eligible for a purchase mortgage, but today we see a 37 percent decline in the number of loans in that category," said George.
As for why the credit box remains so tight, the report points to lenders adding to credit standards because they are so worried they might be forced to pay back any loans that default. This so-called repurchase risk has been at the heart of credit tightening, since banks were forced to pay back billions of dollars in bad loans during the foreclosure crisis. Banks are also worried about litigation and the high cost of servicing troubled loans.
read more: http://www.cnbc.com/id/102563222
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