Standards loosen up for buyers
As mortgage rates rise, lenders will no longer see homeowners lining up to refinance their mortgages. Their golden customers now are homebuyers, and they will do whatever it takes to attract as much business from homebuyers as possible.
Expect underwriting standards to loosen up in coming months as lenders turn their attention to buyers, says Anthony Sanders, professor of real estate and finance at George Mason University. Lenders also are likely to offer incentives and reduce loan fees to entice more buyers, Sanders adds.
"I think banks have gotten crushed because of the decline in refinancing," Sanders says. "Now that the cash cow has been milked, they have to build up their pipelines for purchases."
The average credit score for loans that closed in August has dropped to 734, according to data compiled by Ellie Mae, a mortgage technology firm. That's the lowest average score since the company started tracking the data in August 2011. About 31 percent of the mortgages closed had a score below 700. A year ago, only 15 percent of the loans fell below that threshold.
But it remains to be seen how much the standards will be loosened, given the new mortgage regulations that go into effect next year.