Mortgage Blog

Are Credit Standards Starting to Ease?

Mortgage News

Good news from Fannie Mae! The quarterly Mortgage Lender Sentiment Survey revealed mortgage industry executives feel the tight credit standards may be easing. The August survey found the gap between those reporting decreasing rather than increasing standards ("net easing") now stands at 20% for loans eligible for Fannie Mae backing. Additionally, those same executives predicted that their standards would likely continue to ease over the next three months. Doug Duncan, Fannie Mae's chief economist, noted:

"For the first time in seven quarters, we see a pronounced increase in the share of lenders, particularly medium- and larger-sized lenders, reporting on net an easing of credit standards in both the GSE-eligible and non-GSE eligible loan categories. This is a significant result in light of public discourse on credit availability and standards."

So what's behind the change? Are lenders suddenly just getting nicer, or are borrowers suddenly getting more credit-worthy?  Duncan argues that the change is more likely a result of more mundane factors. It suggests that lenders are becoming more comfortable with both the recent guideline changes by the Fannie Mae and Freddie Mac and the overall regulatory environment. After all the changes, lenders can now price their products with more confidence, and Duncan believes many are more willing to remove the extra layers of risk protection, opening the door for credit-worthy, but underserved borrowers.  

Before you break out the champagne, consider that a strong credit score is still critical to getting approval. Nationally syndicated housing columnist Ken Harney reports that average credit scores are still over 750, indicating that standards are still historically high, even if mortgage lenders are starting to ease standards.