Since the 2008 housing crash, lenders have upheld strict loan standards, disqualifying anyone with a slight blip in their credibility. The high credit standards maintained by lenders, such as Bank of America and JPMorgan Chase & Co., tend to remain above the guidelines set by Fannie Mae, Freddie Mac and the Federal Housing Administration. The lenders are taking no risks.
However, the strict lending requirements of the large lenders has opened the door for smaller firms who are willing to offer riskier mortgages at higher interest rates or with a larger down payment. A few such firms include, Angel Oak Home Loans, Lone Star Funds, Caliber Home Loans Inc., and Banc of California Inc. Rob Hirt, CEO at RPM Mortgage Inc., says,
Some lenders became afraid of their own shadows… The market is beginning to realize that if you make smart and sound loans to people who don’t fit in the narrow box, it doesn’t make them a worse risk.”
This fear has created opportunities in the market. As smaller firms find their niche, the Mortgage Bankers Association reports a 4.7 percent loosening of credit availability this year. While credit remains approximately 90 percent tighter than in 2006, Freddie Mac released reports suggesting 25 percent of lenders eased mortgage guidelines in the last three months by lenders, 14 percent expected to do so in the next three months.
Read more here- “You Don’t Need to Be Perfect to Get a US Loan Anymore,” (Jody Shenn and Alexis Leondis, Bloomberg)