Credit standards for getting a loan are tight and likely won’t ease up in the new year

I recently read this article from the Wall Street Journal and thought I would share it with everybody. “Lenders are still scrutinizing property appraisals, reams of income and bank statements, and anything else that could be used to force them to buy back the loan should it default, which means that it is much harder to get a loan than at any time since the 1990s,” the article says. “Buyers shouldn’t expect that getting a loan will get easier anytime soon, even though rates probably can’t get much more attractive.”

Banks are staying busy with a flood of refinancing from low rates in recent months, and they’re unlikely to ease their standards when they still have plenty of business coming their way, analysts say.

Also, the mortgage lending industry faces plenty of challenges that have contributed to constraining credit. For example, several larger banks are buying fewer mortgages from smaller lenders, which tightened credit in some aspects.

Bigger lenders also have tightened up after a rise in legal expenses and costs, as well as new rules that force them to keep more reserves.

“Banks also aren’t eager to invest in building capacity because origination volumes are likely to fall whenever mortgage rates rise from their current levels, which are the lowest on record,” according to The Wall Street Journal.

Source: “2013: Mortgage Credit Likely to Remain Restrained,” The Wall Street Journal (Dec. 20, 2012)