BluefoxToday blog : Mortgage approval requirements getting tougher, the Fed asserts

Mortgage approval requirements getting tougher, the Fed asserts

Washington has been super busy for months in trying to shore up the ailing financial sector, hoping to keep it from being swallowed into an abyss by the real estate market meltdown. It has used rented front loaders to distribute cash to banks weighed down by nearly-worthless mortgage paper. In addition, the Fed's key short-term lending rate has been butchered down to almost zero. All this frantic activity has given the country some sense of comfort that the dire problem is getting the attention it needs.

Perhaps that's not quite enough, though. The Federal Reserve, or Fed, just published a quarterly survey according to which 50% of banks toughened their lending criteria on prime mortgages. It's up from 45% reported in the same survey done in early February. The numbers are clearly heading in the wrong direction, despite the taxpayer's generosity and everything.

The upward mobile unemployment figure must be factoring in on the banks' decision making. Even more job losses may be coming as the year grinds on. A stellar borrower today can be off the payroll soon after closing on his brand new home loan and then what. Home price volatility is another thorn. Approving a mortgage on a property that will possibly lose another 10 to 15% of its value in, say, the next six months can get mighty risky.

It's also a good bet that many banks are actually in worse shape than they currently let everybody, including the regulators, believe. The recently-concluded stress tests seem to have been more PR than actual hard-hitting ledger analysis. Obviously, if they were getting more confident about underwriting mortgage and other loans they would screamingly do so. Preferably it's sooner rather than later when they can ease up on standards and begin lifting the important housing sector from the ashes.



Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst - syndicated mortgage, housing and property management blog
My cell: 702-499-1006

Comment balloon 16 commentsEsko Kiuru • May 12 2009 03:39PM


Totally agree with you. Until lenders loosen their belts no amount of stimulus money given to businesses is gonna "stimulate" anything. If consumers don't have the means to spend, or the credit they simply will not invest!

Posted by Color Me Realty Color Me Realty (Color Me Realty) almost 11 years ago

I agree. We watch the FICO requirements getting tighter. So in truth the good people will pay the price for the sins of the past.

The self employed? For-get-aboud-it!!!!

Posted by Michael A. Caruso (Surterre Properties) almost 11 years ago

Esko, everything is tightening up, and we will probably see it tighten up even more before it is over.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) almost 11 years ago

Esko I love how you are telling the reality of what banks are doing. Many employees in industry can be off payroll fast you are right.

Posted by Gary Woltal, Assoc. Broker Realtor SFR Dallas Ft. Worth (Keller Williams Realty) almost 11 years ago

So very true, Esko.  Rates are great, but there are certainly a lot of people who would like to capitalize on those who cannot.

Posted by Sarah Eubanks, Preferred Oregon Loan Consultant & Notary Public (Hill Valley Financial Services) almost 11 years ago

nooooooooo noooooooooo nooooooooo!


Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) almost 11 years ago


It's a tough lending environment right now.

Posted by Esko Kiuru almost 11 years ago


Self-employed need to produce a lot of documentation to be considered.

Posted by Esko Kiuru almost 11 years ago


It's a tighten-your-seatbelts time.

Posted by Esko Kiuru almost 11 years ago


The weak job market plays a large role in all of this.

Posted by Esko Kiuru almost 11 years ago


That's so true, many people would like to either refinance or purchase but can't get approved.

Posted by Esko Kiuru almost 11 years ago


Isn't it terrible, at least for now.

Posted by Esko Kiuru almost 11 years ago

I am convinced that banks are in worse shape than is being publicized. The stress test and subsequent spin may very well have been a PR move to move public sentiment, hoping consumer confidence can by itself turn things around.

these mortgage guidelines, MI as well, are not helping increase the qualified buyer pool.

Good points Esko.


Posted by Richard Byron Smith, NMLS #184479, Mortgage Loan Officer (Mortgage Loan Officer, Fairway Independent Mortgage Corporation NMLS #2289) almost 11 years ago


Agree with you. Hopefully the tactic works.

Posted by Esko Kiuru almost 11 years ago

one more truth for you

Posted by Andrew Rosenblatt, Local Expert Real Estate Broker (Andrew Rosenblatt Realty) almost 11 years ago


That's the way it is right now. Thanks for stopping by.

Posted by Esko Kiuru almost 11 years ago