As the housing market continues to recover, demand for mortgages increased during the second quarter of the year but the difference in credit standards between larger and smaller lenders appears to be growing. This is according to Fannie Mae, which tracks current lending activities.
There is industry agreement; it is not easy for consumers to get a mortgage today as some lenders are tightening their credit standards more than others. In Fannie Mae’s “Lender Sentiment Survey,” they found smaller and mid-size lenders are more likely than larger lenders to report their credit standards tightened over the past quarter. These same lenders also said they are more likely to tighten them even more in the next three months.
The larger lenders, on the other hand, were more likely to say they have eased credit standards and they expect to continue to ease requirements over the next few months.
The most common reason for increasing credit standards as reported by small to mid-size lenders in the survey was regulatory requirements. For example, in January, the qualified mortgage rule took effect, which aims to protect consumers by strengthening underwriting standards. This rule requires, among other requirements, all mortgage applicants to do full documentation of income, assets, and employment; have a maximum of 3 percent for points and fees; and has a cap of 43 percent on the back-end debt-to-income ratio.
As costs rise many smaller lenders may be applying more conservative standards to slow down this portion of their business while they find ways to manage increased costs. It would appear the large lenders are better equipped to manage the increased regulatory costs.
The Fannie Mae survey did report, overall, that lenders reported positive expectations for mortgage demand throughout the remainder of the year but with only modest growth.
For consumers who are considering buying a home the message is clear, talk to more than one lender and although I have not been a fan of the larger lenders, now may be a good time to add one to your mix of conversations.
