Home loan demand rises, but credit standards remain tight

The housing market may be showing flickers of recovery, but don’t count on lenders to make it any easier for borrowers.

While banks are seeing stronger demand for home loans, they’re not loosening up their tight credit requirements, according to the Federal Reserve’s April survey of senior loan officers.

The survey, released Monday, found more than 90% of the bank respondents made basically no change over the last three months in their credit standards for prime home borrowers -- those who have relatively high credit scores and well-documented financial statements. And for nontraditional residential loans, which include interest-only mortgages and “alt-A” products with limited income verification, credit standards tightened a bit since January.

The Fed’s quarterly survey, however, showed more banks eased standards for most other types of consumer loans. And demand for all types of consumer loans rose somewhat, the Fed said, with auto loans having the biggest increase.


To understand just how much times have changed from a few years ago, the Fed asked loan officers a series of questions about their likelihood of making home loans to certain borrowers today compared with 2006, at the height of the market.

About 60% of lenders said they were “much less likely” to approve a home loan for a borrower with a FICO score of 620 who made a down payment of 10% -- a big change from the mood in 2006. Even for an applicant with a respectable credit score of 680 and a 10% down payment, 21% of lenders said they were much less likely to say yes today compared with 2006. And 29% said they were “somewhat less likely” to approve that application.

For business loans, the Fed survey found that a small fraction (7%) of bank respondents said they eased credit standards over the last three months for larger businesses. But none of the lenders surveyed said they had lowered the standards for small firms -- those with sales of less than $50 million annually -- even though demand picked up over the last three months.


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