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For homeowners and home buyers in search of "prime" mortgages, a Federal Reserve-led survey confirms what most mortgage applicants have found out the hard way -- getting approved for a home loan is tougher than ever before.

Each quarter, in a survey of its member banks, the Federal Reserve asks senior loan officers whether their respective prime residential mortgage guidelines have tightened over the 3 months prior. 

May's survey showed that half of all banks had tightened.

The report is more State of the Union than news, per se, but it's still worth studying because "prime mortgages" are historically reserved for applicants of "AAA" credit quality.  They have:

1. The highest credit scores
2. The highest income versus debt
3. The highest home equity percentages

As the three legs of the Mortgage Approval Triangle, it's these elements that separate approvals from denials and, over the last 6 quarters, what were once barriers to approval have since morphed into hurdles.  To get the lowest mortgage rates available in today's market, a homeowner should come to the table with a 740 credit score, debt ratios under 45 percent, and a 60% loan-to-value or better

Without these qualifiers, you can still get good rates for a conforming loan, just not as good as the next guy. 

As part of the guideline tightening, there's now something called Loan-Level Pricing Adjustments on most prime loans.  It's a risk-based fee that works a lot like auto insurance -- the higher your risk to the lender, the higher your interest rate.  Low credit scores and high loan-to-values are the equivalent of driving a sportscar.

780 FICO with 50% LTV is a minivan.

This new system of scoring mortgage rates confounds homeowners everywhere whose all-time payment history is 100% perfect and who always borrow responsibily.  They wonder why they can't get access to the lowest mortgage rates available.  I know this because they email me about it.  The answer is tied to FICO and home equity.

And it's not just doctors, lawyers, and athletes asking, either -- it's everybody.

Meanwhile, banks getting tighter on guidelines has impacted "non-prime" borrowers, too, including homeowners with jumbo mortgages.  Because their loan sizes are too big for the "prime" market, these homeowners create additional balance sheet risks for banks that choose lend to them.  It's no surprise, therefore, that barey a quarter of the banks making "non-prime" loosened guidelines from February through April.

And wouldn't you know it -- jumbo mortgage rates are coming down, just fewer people qualify for them. You can  with your specific jumbo eligibility questions anytime.

The guideline news isn't all bleak, however.  Looking at the chart, it's apparent that banks are tightening their guidelines at a slower pace. 

Indeed, even 15 percent of the banks surveyed reported a modest loosening.  Patterns like this can be good for housing for two reasons:

1. More qualified applicants creates a larger home buyer pool
2. Refinancing boosts household cash flow, spurring spending and the economy

It's widely believed that credit tightening depeened the current recession.  A credit loosening, therefore, may help lead us out.  The Fed's survey doesn't show evidence of easing just yet, but later this year, we could see marked improvement.

Hopefully for home buyers and homeowners, when we do see that improvement, may mortgage rates be low enough to exploit it.

Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.