Are Federal Rules Scaring Banks Away from Many Home Loans?

With home sales on target to fall this year for the first time in four years some believe one cause could be the new federal lending rules put in place after the 2008 mortgage collapse. Even with a stabilizing pricing market and low interest rates, all but the most qualified buyers potentially face a tough and sometimes lengthy road toward loan approval.
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These new rules may have pushed the pendulum too far from loans that were too easy to get vs. now where loans are too hard to secure. The average borrower getting a purchase loan today has a FICO score of about 740 where in the late 1990s and early 2000s, that number was in the mid-600s. Many potential borrowers are rejected today with much higher FICO scores.

The rules are still often unclear, lenders say, which is why they’re making only bulletproof loans. The potential penalties aren’t worth the profits, said David Stevens, president of the Mortgage Bankers Assn.

The cautious climate of the last few years has shut out many of the people who suffered most in the housing crash, said Paul Leonard, California director for the Center for Responsible Lending.

There may be some good news as federal regulators recently lowered down payment requirements on federally insured mortgages to 3.5% and issued new rules for what qualifies as a safe loan.

Are you seeing buyers struggle to get loans approved in your area? We’d like to know what you’re seeing in your area.