Will Banks Finally Loosen The Purse Strings in 2012?
The research firm Capital Economics are among the growing cadre of economists and industry forecasters that believe that the crisis is coming to an end. They cite one big factor, albeit an obvious one, and that’s loosening credit.
As economists are prone to do, they blow through the water cooler buzz and head straight for the numbers, so here they are. If you have a credit score of 700, you should be able to qualify for a loan. Sure, this is a higher number than may have been required five years ago, but it’s remained fairly flat over the last two years.
Phrased another way, the number, at least, is not rising. The Federal Reserve reported that credit score requirements in the fourth quarter of 2011 were about the same in previous two quarters of 2011. Again, not going up, so in their eyes, the glass is half.
There’s another “stabilization” measurement that economists point to as a good sign. Banks are becoming more in sync – getting on the same page – with respect to their lending standards.
Even better, it seems, there are signs that point to a loosening of the availability of credit. Some banks are lending amounts up to 3.5 times a borrower’s earnings, up from 3.2 at the depth of the crisis. Loan-to-value ratios (LTV), are moving in a direction that is favorable to the buyer. In fact, Capital Economics cites this measure as “the clearest sign yet of an improvement in mortgage credit conditions.” From a low 74 percent in mid-2010, banks are now granting mortgages for 82 percent of a home’s value.
There’s another number that may dampen these high spirits for some, but can be interpreted in so many ways that its meaning may be simultaneously interesting and irrelevant. Since economists love their numbers, they had to throw in this little jewel. Suppose you find a house you love, get “pre-qualified,” (not “pre-approved”). You agree to a contract with a seller, and sign on the dotted line. In November of 2011, for example, eight percent of those contracts were cancelled, because the buyer, ultimately, couldn’t get the loan.
This is the first in our new series of blogs (Mortgage Industry Insights), where we will be talking about the Mortgage and Financial Industry in general, with issues that maybe affect you and your home buying process.