“Big Banks” Loosen Mortgage Guidelines; More Homeowners Getting Approved

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Despite what you hear from friends and neighbors, the nation's banks have stopped tightening their lending standards. In fact, borrowing money for a mortgage is starting to get simpler.

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Not A Single Bank Tightened Mortgage Guidelines

Each quarter, the Federal Reserve sends a survey to its member banks to gauge the change in supply of, and demand for, loans from businesses and U.S. households.

Among the survey questions is one pertaining to prime residential mortgages where "prime residential mortgage" is defined as a mortgage for borrowers with a well-documented, high-performance credit history; with low debt-to-income ratios; and who chooses to finance a home via a traditional fixed-rate or adjustable-rate mortgage product.

The Fed wants to know if banks prime mortgage guidelines are getting tougher, easier, or staying the same.

Last quarter, not a single bank toughened up.

• Percentage of banks that tightened mortgage guidelines : 0%
• Percentage of banks that made no change in mortgage guidelines : 94%
• Percentage of banks that loosened mortgage guidelines : 6%

This marks the first time since the U.S. financial system's near-collapse that banks have loosened the purse strings a bit. It's a good sign for 2012 as the home purchase market heats up and as home values begin to recover.

It's not as tough to get a mortgage these days.

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Trends : Easier Mortgage Qualification Standards

As compared to the last few years, mortgage standards remain stiff. Minimum downpayment requirements are larger in many cases; banks require more income to offset debts; and minimum FICO score thresholds are rising.

However, there are a number of loan programs that highlight the growing trend toward looser mortgage standards.

First, there's HARP 2.

HARP 2 was released last year but is only now widely-available to U.S. homeowners. HARP 2 is government's second iteration at the mortgage product meant for underwater homeowners.

HARP is the ultimate "Everyone Gets Approved" mortgage. There are no employment checks, no income checks, no credit score checks and no appraisals. There's also no maximum loan-to-value if you're willing to take a fixed-rate loan.

About the only thing that matters with HARP is that you've not missed a mortgage payment in the last year. Read the complete HARP guidelines here.

Then, there's the FHA Streamline Refinance program. That, too, is about as loose as you can. Similar to HARP, FHA Streamline Refinances require no appraisal and have only minimal qualification standards.

Plus, the FHA just raised its loan limits so homeowners in places like Los Angeles County, California; and Bethesda, Maryland can purchase homes for $750,000 and put just 3.5% down.

The USDA and VA programs are softening a bit, too, and mortgage rates continue to defy experts and logic.

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Grab A Low Rate Before They Start Rising

If banks are approving more loans, it means that the economy is in recovery. Banks are feeling better about risks and think that housing has turned a corner. This means that mortgage rates are likely to rise -- post-recession recoveries are linked to higher mortgage rates.

Don't wait too long to refinance your home, or make that purchase offer. The banks are telling us things are looking up. Pretty soon, so will your mortgage rate.

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