At long last, the mortgage drought is winding down. Credit is not exactly raining down on would-be borrowers but it is definitely opening up.

News reports are pointing to the Federal Reserve's January survey of senior bank officers, which reveals a small but significant improvement:

  • Banks loosening mortgage guidelines -- 6.1%.
  • Banks tightening mortgage guidelines -- 1.5%.
  • Banks reporting no change in mortgage guidelines -- 92.3%.

Yes, it's a teeny bit of loosening. But Dan Green's Daily Mortgage Report says the change in direction is significant:

"The Q4 2012 survey marks the ninth straight survey in which fewer than 10% of banks tightened standards. Many more are loosening instead. It's a good sign for the 2013 home purchase market, which has shown strong buyer demand and rising home prices."

Image: Real estate agent (© Stockbyte-SuperStock)
Green concludes: "Despite what you may hear from friends and neighbors, the nation's banks are no longer tightening their respective mortgage lending standards."

He also points out that mortgage software provider Ellie Mae is reporting a 5% increase in the number of purchase and refinance applications approved.

Reasons for reverse

Bloomberg reports:

"There's a continuing loosening of credit standards, and more importantly, demand for credit is up, said Sam Coffin, an economist for UBS in Stamford, Conn., the second-best forecaster of the unemployment rate over the past two years, according to Bloomberg rankings. All that is good for growth and jobs."

"Americans are finding it easier to borrow from banks, supporting consumer spending and business investment and helping fuel employment just as U.S. government budget cuts start to take hold," Bloomberg adds.

In the blog post "Credit spigot opens for U.S. borrowers," Moody's Analytics mortgage expert Celia Chen says that problems driving tight credit are "reversing":

  • Consumer credit quality is improving, increasing the pool of potential borrowers.
  • Policymakers, regulators and courts are ironing out the legal and regulatory issues that have cast a pall of uncertainty over the mortgage industry.
  • Mortgage interest rates will remain low.

"Credit will be more accessible to households this year, although still not back to normal," Chen says.

Interviewed by email, Cara Hawkins, a production manager at Ameripro Funding in Addison, Texas, names two more reasons why mortgage lending is loosening: More lenders are going back into the mortgage business, and investors have started buying their mortgages. A lot of lenders fled the mortgage business after the housing catastrophe.

FHA: The new subprime

Hawkins says:

"There are more players in the mortgage buying 'game' than in past years, which opens the door to looser credit standards because the appetite for loans on the secondary market is higher. While it is still fairly black and white when it comes to mortgage qualification, I am seeing an increase in more approvable loans than in past years because of the market opening up."

She also offers another reason for the credit expansion:

"FHA is the new 'subprime.' Lenders are becoming more adept at rescoring borrowers' credit and coaching them through the obstacles that may be keeping them from obtaining a loan. FHA isn't just for first-time homebuyers anymore but rather borrowers who may have had credit challenges in the past few years due to unemployment or loss of savings resulting in a low down payment."

Formerly delinquent borrowers are looking for ways back into mortgages, says  NBC News:

"A new survey of past clients, a website that assists borrowers in the legal pitfalls of strategic default, found that nearly 80% expressed a desire to buy a home again within the next 12 months. It also cites data by Moody's Analytics, showing that the number of eligible homebuyers who have had a previous foreclosure will be 1.5 million by the first quarter of 2014."

The average mortgage in 2012

While we're on the subject of credit, take a look at real estate blog Keeping Matters Current's use of stats (from mortgage automation company Ellie Mae) to describe the average mortgage loan in 2012:

  • Time to close -- 48 days.
  • Down payment -- 21%.
  • Credit score -- 748 (37% of 200 million Americans have scores of 748 or higher.)
  • Debt to income -- Monthly house payment, 23%; total household debt, 34%.
  • Interest rate -- 3.90%.

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