Are Mortgage Loans Getting Tougher to Obtain?
I just read an article on Reuters news network about mortgage lenders stiffening their qualification standards. In fact, a current drop in home sales is being partly attributed to new / tougher qualification standards imposed my mortgage lenders.
What’s the reason for all this?
Well, it goes back a few years actually. You see, many mortgage lenders in the past have been so eager to make loans (and make money) that they extended mortgage loans to people who probably should not have qualified. These are called subprime mortgage loans, and they are made to borrower’s who (for bad credit or low income reasons) would not normally qualify for a loan.
Later, many of these borrower’s found themselves struggling to keep up with their mortgage payments. No surprise really. So they had to either sell the home, refinance the mortgage loan, or default on the loan and go into foreclosure. This is partly why mortgage defaults and home foreclosures are at an all-time high right now.
The mortgage industry has come under fire lately because of such practices (lending money to people who probably should not be taking on a loan). In response to this criticism, many mortgage lenders are increasing the standards through which they make loan, which means fewer people will qualify for loans. This, says the Reuters article, is partly responsible for the current drop in home sales in many parts of the country.
Article excerpt:
Borrowers should not be penalized for refinancing out of a mortgage before a low introductory rate resets to a higher level … The guidelines, which lenders treat as binding, also call for lenders to warn borrowers when a reset is coming and grant them at least 60 days to refinance.