If you know someone who has been through the mortgage application and approval process lately, chances are you’ve heard the horror stories already. The endless amounts of paperwork. The checking, and double-checking, of bank statements and tax records. The “letters of explanation” requested by the mortgage company’s underwriter.
This much is true: It is harder harder to qualify for a home loan these days, compared to the boom years of the early and mid 2000s. And some government officials want to change this.
In a recent speech, the head of the nation’s cabinet-level housing agency said it should easier, not harder, for well-qualified borrowers to get a mortgage loan in 2015. He wants to help lenders improve access to credit for such borrowers.
The pendulum has swung too far in the other direction, everyone keeps saying. It used to be too easy to get a home loan. Now it’s too hard. The question is, can we get the pendulum unstuck?
HUD Boss: Too Hard to Get a Home Loan in 2014
In October, Julian Castro, Secretary of the Department of Housing and Urban Development (HUD), spoke to a group of mortgage lenders at their annual banking convention in Las Vegas. Among other things, he told them what they already know — that the “pendulum” of lending standards swung too far in the other direction after the housing crisis.
“Some believe that a few years ago, it was too easy to get a home loan,” Castro said. “Now, it’s too hard.”
When he talks about how it was too easy to qualify for a mortgage, he is referring to the housing boom years of the last 1990s through the mid 2000s. Those were the days when nearly anyone could qualify for a loan, due to such innovative (and ludicrous) products as the payment-option ARM and the stated-income loan.
We know how that story ended. Too many bad loans given to too many shaky borrowers, and the entire system came crashing down.
Today, a growing chorus of voices is complaining that mortgage lenders and regulators have over-corrected by becoming too strict. In other words, it’s too hard to get a home loan these days, even for well-qualified borrowers. New lending rules, such as the federal government’s so-called Qualified Mortgage rule, have made lenders increasingly fearful of underwriting mistakes. All of this fear and uncertainty shrinks the credit pool, making it harder for borrowers to qualify for mortgage loans.
Castro believes that lenders, regulators and housing agencies should work together to expand access to credit, not limit it.
“It’s in our entire nation’s interest to help more responsible Americans succeed in the housing market by expanding access to credit,” he told the convention attendees.
Easier Access to Mortgage Financing in 2015?
This is the latest in a series of speeches, press releases and announcements signalling an easing trend within the mortgage industry. Or at least pushing for such a trend.
In May, the Federal Housing Administration (FHA), which falls under HUD, published its brand-new “Blueprint for Access.” The document outlines certain steps the agency is taking to “expand access to credit for underserved borrowers.”
Underserved, in this context, refers to reasonably qualified borrowers who find it hard to get a mortgage loan.
“Expand access to credit” seems to be the new mantra and mission statement among government housing officials. Here’s how I would translate it: “We should make it easier for responsible borrowers to get home loans.”
But how to achieve this lofty goal? HUD wants to improve access to FHA financing by (A) offering educational counseling to home buyers and (B) clarifying lending guidelines to mortgage lenders. As part of a four-year pilot program, home buyers who undergo counseling will receive a discount on the mandatory mortgage insurance most FHA borrowers have to pay.
As for clarifying their rules to lenders, the agency plans to “provide greater clarity and transparency to FHA approved lenders to encourage lending to qualified borrowers across the credit spectrum.”
Will all of this make it easy to get a mortgage loan in 2015? Probably not. Nothing about the lending process is easy. Borrowers will still have to provide a mountain of paperwork to comply with the federal government’s “Ability-to-Repay” rules. So it’s probably more accurate to say that the process might be easier than it has been in the past. But it will still be thorough.
I’ll close with Julian Castro’s closing remarks, from the speech given at the Mortgage Bankers Association convention:
“And so my message to you is this: let’s work together. Americans are counting on us to get this right. Through partnership, I know we will and help more folks gain access to the American Dream.”