BluefoxToday blog : 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.