Economists' Outlook

Housing stats and analysis from NAR's research experts.

Tight Credit and Slow Lending Continue to be a Problem

One of the most frequent comments by Realtors® responding to the latest RCI survey was a concern over unreasonably tight credit conditions, as discussed in the June 2012 edition of the Realtors® Confidence Index.   Respondents indicated that credit conditions continue to be too tight, that lenders are taking too long in approving an application, and that information required from borrowers is excessive.

Financial institutions are reported as focusing on making loans only to individuals with the highest level of credit scores.  It is well known that a number of financial institutions have weak loan portfolios due to previous lending standards now perceived as having been too loose.  The lending pendulum appears to have swung to the other extreme in some cases, resulting in some institutions decreasing their overall lending efforts and/or imposing unrealistically high credit standards.  Respondents noted that regional and community banks as well as credit unions were potential alternative sources of mortgages.

A comparison of FICO scores for loan transactions as reported by Realtors® responding to the RCI survey over the February through June time span compared with FICO scores reported for Fannie Mae and Freddie Mac single family home loans for the lending conditions in the pre-boom housing market of a few years ago shows that credit availability to lower scoring applicants appears to have declined substantially.  Realtors® provided FICO information based on their understanding of the buyers’ credit situations; in many cases the information was estimated.  Overall the data seem to substantiate relatively tight credit conditions—a situation discussed in detail by Realtors® responding to the survey:  fewer loans to low FICO borrowers, more loans to high FICO borrowers.

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