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Are lending standards too tight?

By Polyana da Costa · Bankrate.com
Wednesday, September 19, 2012
Posted: 11 am ET

Rates are low, but you can't get a mortgage. This is still the reality faced by many homeowners who want to refinance and potential homebuyers who can afford a home but can't qualify for a loan.

More than half of the borrowers who were approved for a mortgage in August had credit scores above 740, according to a monthly survey by the National Association of Realtors released this week.

Lending standards remain unreasonably tight despite the fact that profits in the financial industry have climbed back strongly to pre-recession levels, says Lawrence Yun, NAR's chief economist.

"There is an unnecessarily high level of risk aversion among mortgage lenders and regulators, although many are sitting on large volumes of cash, which could go a long way toward speeding our economic recovery.  A loosening of the overly restrictive lending standards is very much in order," he says.

Despite the low rates, the number of home loans issued in 2011 tumbled to the lowest level since 1995, according to a report released by federal regulators Tuesday.

Lenders issued 7.1 million mortgage loans in 2011, a 10 percent decline compared to the previous year. That's not because of a shortage of borrowers. Lenders received about 11.7 million mortgage applications in 2011, but many of those borrowers didn't qualify for a loan.

Do you think the tight lending standards are necessary, or are lenders being too strict?

Follow me on Twitter @Polyanad.

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3 Comments
Frank
September 27, 2012 at 8:31 am

Are lenders being "too tight" with their standards? NO.

Its 80-95% of the LENDERS money that is at risk, when you buy a house with a loan.

We nursed, babied, and protected our credit rating to be able to buy a place, and get a fixed rate of 3.25% for 30 Yrs (which to me is INSANE for a 30 Yr rate).

Want someone else's money? Follow their standards...