Paul Sakuma, Associated Press
The easy credit that crashed the housing market led to lending standards so strict that Federal Reserve Board Chairman Ben Bernanke blamed them for hurting the recovery.
In recent months, however, lenders have relaxed their grip somewhat as the market has rebounded and home prices have soared.
More ways to get a mortgage are in the offing, mostly for borrowers with solid incomes and strong track records. Real estate analysts also say rising rates could spur renewed competition among lenders.
“They are considerably more flexible than they were two years ago. It’s gaining steam,” said Guy Cecala, publisher of Inside Mortgage Finance, a company that tracks and analyzes the mortgage market. “If you didn’t qualify a year ago, it wouldn’t hurt to go back and find out if you can qualify now.”
Bankers remain cautious but are becoming more accommodating, agreed Erin Lantz, director of Zillow Mortgage Marketplace: “The pendulum is swinging back to more normal, but still prudent, lending guidelines. Loans are becoming a bit more accessible.”
The Mortgage Bankers Association has come up with a tool, the Mortgage Credit Availability Index, to help measure trends in mortgage availability. The index rose 7.2 percent in May from May 2012, meaning it has become “somewhat easier” to obtain a loan, said Rick Allen, chief operating officer of MortgageMarvel.com, a mortgage shopping website.
Here are five ways that mortgage experts say the market is becoming more flexible:
1. Some lenders are easing payment and credit score requirements. Having a modest down payment or a lower than stellar credit score won’t necessarily keep you from buying a home. Between March 2011 and March 2013, Zillow Mortgage Marketplace saw a 570 percent increase in the number of lenders offering conforming loan quotes with down payments between 3.5 percent and 5 percent, Lantz said. That does not include the Federal Housing Administration, which allows down payments of 3.5 percent.
If a borrower can provide a bigger down payment, a bank may dial back on a high credit score requirement. Cecala said lenders have wiggle room because of overlays, standards they impose above those required by mortgage giants Fannie Mae and Freddie Mac.
2. Piggyback loans are popping up. The term describes two mortgages taken out at the same time for one property, so a borrower can avoid paying for private mortgage insurance on a traditional loan representing more than 80 percent of a home’s value. Piggybacks also help borrowers avoid higher interest rates on jumbo mortgages.
Jeff Lazerson, who runs Mortgage Grader, an online brokerage in Laguna Niguel, Calif., said he began offering piggyback loans again this year, allowing borrowers to refinance up to 90 percent of the value of their homes. But unlike piggyback loans in the past, he said, “With these, you have to income-qualify for it and have some skin in the game.”
He said the loans are conservatively underwritten, requiring at least a 700 credit score even if the borrower has put down more than 10 percent on the mortgage.
3. Stated income loans are back. These don’t require tax-returns to prove income, but they’re also tougher to get than in the boom days, when they were given to people with no or few financial resources and dubbed “liar loans.”
“I am starting to see lenders advertising stated income loans, which will be helpful to so many self-employed borrowers,” said Christine Donovan, a real estate broker at DonovanBlatt Realty in Costa Mesa, Calif. “The rates are not great, and it requires higher down payments, though it seems like a step in the right direction.”