Real Estate Market

HARP, low mortgage rates prompt lenders to write more mortgages, ease underwriting - a bit

by Broderick Perkins

(8/13/2012) If you barely missed getting approved for a mortgage earlier this year, try again - now, before rates push up.

While they aren't quite rolling out the red carpet, lenders are making ever more home loans and they are slowly easing underwriting standards to make it so.

"A year ago, 30 percent of my loans were falling out," said Debra Mitchell-Adams, a broker associate with Keller Williams-Antelope Valley in Palmdale, CA.

"Now, it's more like 10 percent. Some of it is because our prequalification process has improved, agents' understanding of what qualifies a buyer has gotten better and a lot of fraud has been taken out of the system, but lender guidelines are easier and lender practices are more streamlined," Mitchell-Adams said.

Mortgage Daily reports the number of second-quarter home loan originations at large banks were up nearly 50 percent from a year ago. Originations rose 4.6 percent from the first quarter.

More than half of the home loan volume was closed by the four-biggest lenders Wells Fargo, Chase, US Bank and Bank of America.

Smaller mortgage bankers and credit unions, some reporting record originations, were also capitalizing on record-low interest rates, Mortgage Daily reported.

The fastest-growing lenders included PennyMac Mortgage Investment Trust, where production leapt 89 percent and both Primary Residential Mortgage Inc. and United Wholesale Mortgage pushed production by 50 percent.

Mortgage Daily said FHA-insured loans comprised 15 percent of activity, up 15 percent from the first quarter, while the Fannie Mae and Freddie Mac share accounted for 81 percent.

Much of the government's 97 percent share (up from 94 percent in the first quarter) of all mortgages can be attributed to the boom in Home Affordable Refinance Program (HARP).

In June, one of every three Fannie Mae and Freddie Mac refinances were HARP loans, according to the Federal Housing Finance Agency (FHFA). That's the highest number since the program began in April 2009.

Along with low interest rates, recent HARP enhancements account for the growing share and more mortgages overall.

The demand is allowing lenders to take on a bit more risk by virtually ending tightening their underwriting rules.

The latest Federal Reserve Senior Loan Survey says In the July survey, "modest fractions of domestic banks, on balance, continued to report having eased their lending standards across most loan types over the past three months."

This year so far, the percentage of lenders tightening lending standards has been approximately 15 percent and below, compared to levels of 70 percent and higher during the height of the recession in 2008.

"You can get a loan that you couldn't have gotten six months ago," said Asmaa Egal a senior loan consultant at Loan Republic Financial and real estate agent with J. Motto Real Estate, both in Palo Alto, CA.

Egal said lenders have streamlined loan processing and they have eased up loan-to-value ratios (raising them from 105-110 percent, to 135 percent) and FICO scores (now as low as 620) for HARP loans and other programs, but not every loan will see eased underwriting.

"It's still mixed," Egal said.

In the past three months, 3.3 percent of banks have eased underwriting standards, 93.7 have left them unchanged and 3.2 percent have tightened underwriting standards.

Three months prior, 3.7 percent of banks had eased underwriting standards, 90.7 had left them unchanged and 5.6 percent were still tightening standards, according to the Federal Reserve.

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