Consumer credit has been recovering, but mortgage lending continues to lag.
Data from the Federal Reserve Board shows that consumer credit debt is now higher than it was before the recession, while mortgage debt continues to decline.
Based on information in the monthly REALTORS® Confidence Index (RCI) Survey (http://www.realtor.org/reports/realtors-confidence-index) many REALTORS® have indicated that lending by banks and other financial institutions continue to be too tight. NAR estimates an additional 250-300 thousand existing home sales under less restrictive conditions.
Meaning for REALTORS®: This is additional confirmation that a recovery is under way. Although there is some evidence of credit easing, prospective purchasers may need to be persistent in applying to several places for a mortgage—and will want to clear up any credit discrepancies before applying.
Each month, the National Association of REALTORS® gathers up-to-date and on-the-ground incisive comments from REALTORS® who participate in the REALTORS® Confidence Index (RCI) survey. The RCI survey tracks expectations about overall market conditions, buyer/seller traffic, price, buyer profiles, and issues affecting real estate. The November 2012 survey was conducted during November 26 through November 30, 2012. All real estate is local and conditions in specific markets may vary from the national trend.
One of the major concerns is the tight credit conditions. Access to financing remains difficult, benefting cash buyers, and the process remains protracted, causing delayed closings and risking cancellations. There are reports that banks are asking for higher credit scores, with a report of a bank rejecting a score of as high as 800. There is also lack of assistance for helping current homeowners who are slightly delinquent to modify keep their homes. Here is what REALTORS® are saying:
- Financing taking too long (underwriting/processing with a radical amount of multiple review creating a back log) which results in confusion in the final days leading up to closing.
- Lenders are not making closing dates. 45-60 days are being given per contract and we are seeing as much as a 2 month delay in closings.
- The mortgage industry is continuing to be in a difficult process. They are taking the process to the extreme and even offending strong buyers with credit scores in the 800′s.
- 35% of my buyers contracts have been terminated due to lenders and underwriters changing qualifications in the process, and buyers losing money for inspections and appraisals
- Lender are being more aggressive (in a good way) working with Short Sales. They need to be more aggressive with Loan Modification.
Recently released government data for 2011 from the Home Mortgage Disclosure Act (HMDA) shows just how tight mortgage credit has been. Incomes of prospective purchasers have increased since 2004, but the loan to income ratio has declined. The median household income for a homebuyer using conventional financing rose from $79,000 in 2007 to $ 90,000 by 2011, while the national median household income has remained flat since 2007 at about $50,000, This indicates that either 1) more loan applicants with higher incomes were applying and those with lower incomes were self-selecting themselves out of the process, and/or 2) that banks income standards had become more stringent.
Each month, the National Association of REALTORS® obtains up-to-date and on-the-ground incisive comments from REALTORS® who participate in the REALTORS® Confidence Index (RCI) survey. The RCI survey tracks expectations about overall market conditions, buyer/seller traffic, price, buyer profiles, and issues affecting real estate.
The selected comments reflect the general sentiment expressed by REALTORS® who participated in the October 2012, conducted during October 22 through November 5, 2012. All real estate is local and conditions in specific markets may vary from the national trend.
REALTORS® reported that access to financing remains tight, so cash buyers, who are typically investors, are winning the bids against first-time homebuyers. There are reports that banks are asking for higher credit scores, with a report of a bank rejecting a score of as high as 800. It also appears that self-employment can be a problem in obtaining a mortgage. The mortgage application process continues to be deemed as too drawn out to the point of thwarting or jeopardizing the sale. There is also lack of assistance for helping current homeowners who are slightly delinquent to modify keep their homes.
- “Banks are ignoring settlement dates and can’t even give you a reason for a delay. There is no accountability on their end of the transaction. Three settlements in October were delayed due to lender issues.”
- “1st time buyers finding it difficult to qualify for loans”
- “I had two buyers with over 800 credit score and the bank would not loan. They ended up paying cash and looking for a loan after the closing.”
- “The lack of assistance from the mortgage companies for helping current home owners modifying their loan due to being underwater or slight delinquency to help them stay in their homes!!!!”
- “Cash buyers are winning bids. FHA buyers hardly have a chance.”
- “Concerned about purchases by investor groups – hundreds of homes purchased from Fannie/Freddie – basically no information forthcoming regarding this – concerned about what effect this will have long term in our area – are we going to have no “real” home owners for years to come? Not a good plan – list with realtors, to be purchased by home owner.”
REALTORS® have been aware of tight lending conditions for years. Data on average FICO scores, debt-to-income ratios and downpayments support this conclusion. However, a recent survey conducted by the Federal Reserve sheds more light on which factors are driving banks’ choice to restrict lending.