U.S. mortgage rates are dropping. Good luck getting a loan.
Existing home prices have fallen 7.7 percent since their July 2006 high and rates dropped below 6 percent last week for the first time in more than three months. The obstacle for people ready to buy is finding a willing lender, said Suzanne Bach, senior vice president of New York-based Guardhill Financial Corp., and an 18-year home lending veteran.
“Nobody really wants to take risk anymore,” Bach said in an interview. “Deals are getting really hard to do now.”
Lenders including Bank of America Corp. and JPMorgan Chase & Co. keep requiring higher credit scores, bigger cash down payments, and more income than was needed to buy a home during the five-year housing boom. Astoria Federal Savings, a Lake Success, New York-based lender that holds mortgages on its books rather than selling them to investors, has even started discounting annual employee bonuses in calculating income.
About 75 percent of U.S. banks tightened standards on mortgage lending to the most credit-worthy borrowers in the three months ended in July, according to the Federal Reserve’s quarterly Senior Loan Officer Survey released Aug. 11.
The average U.S. 30-year fixed-rate mortgage was 5.78 percent yesterday, down from 6.08 percent the week before, according to Bankrate.com. The Fed is scheduled to meet Tuesday and may lower its key rate to 1.75 percent from 2 percent which may reduce mortgage rates further.
“Tighter standards assure the loans are less likely to fail, but also have had the unfortunate effect of limiting the ability of some first-time home buyers to enter the market,” said Sara Tinsley Demarest, spokeswoman for the Washington-based Mortgage Bankers Association.
The credit squeeze is contributing to falling home sales. In July, the National Association of Realtors’ index of pending home resales fell 3.2 percent, a decline NAR Chief Economist Lawrence Yun blamed on “overly stringent lending criteria.” The index is down 6.8 percent since July 2007.
“The most difficult thing now is the appraisals are being scrutinized so much more than they have ever been,” Stockert said. “The higher the sale price, the more scrutiny that is happening. We’re talking two or three appraisals on the same property.”