Tight Credit and Slow Lending Continue to be a Problem

One of the most frequent comments by Realtors® responding to the latest RCI survey was a concern over unreasonably tight credit conditions, as discussed in the June 2012 edition of the Realtors® Confidence Index.   Respondents indicated that credit conditions continue to be too tight, that lenders are taking too long in approving an application, and that information required from borrowers is excessive.

Financial institutions are reported as focusing on making loans only to individuals with the highest level of credit scores.  It is well known that a number of financial institutions have weak loan portfolios due to previous lending standards now perceived as having been too loose.  The lending pendulum appears to have swung to the other extreme in some cases, resulting in some institutions decreasing their overall lending efforts and/or imposing unrealistically high credit standards.  Respondents noted that regional and community banks as well as credit unions were potential alternative sources of mortgages.

A comparison of FICO scores for loan transactions as reported by Realtors® responding to the RCI survey over the February through June time span compared with FICO scores reported for Fannie Mae and Freddie Mac single family home loans for the lending conditions in the pre-boom housing market of a few years ago shows that credit availability to lower scoring applicants appears to have declined substantially.  Realtors® provided FICO information based on their understanding of the buyers’ credit situations; in many cases the information was estimated.  Overall the data seem to substantiate relatively tight credit conditions—a situation discussed in detail by Realtors® responding to the survey:  fewer loans to low FICO borrowers, more loans to high FICO borrowers.

Jed Smith, Managing Director, Quantitative Research

Jed Smith is Managing Director, Quantitative Research with the National Association of Realtors®. He has worked on real estate issues for the past 20 years, providing input on a variety of housing, commercial real estate, tax, and planning issues. Recently he has been involved in several international studies.

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  1. Dana

    Great article, but I would like to add comments to an area seen by many borrowers, in my case first time home buyer, which adds to slow lending, and that is, the process and lengthy time to close. It use to be where 30-45 days was a norm, but in today’s world or in my case 60+ days. My once July 7th closing date is now Aug. 10th and still a moving target. My bank won’t commit to a date or time frame and my file sits at underwriting until it’s my turn. I don’t want to “P” them off or they’ll put me on the bottom of the pile. The frustrating part is after my first extension, I pay the seller $65 per diem and risk losing all if bank not able to close on time. Basically, I’m at the mercy of the bank if I want to purchase this home and there is nothing I can do but wait and pay $65 per day. I strongly believe this is a topic of discussion and banks should bear some responsibility in certain cases, such as mine, where my financial position is strong with no issues from the start. There is no transparency, especially when they know the closing date from the start. It’s a crime!