Are Real Estate Mortgages Easier To Get?

The latest loan officer survey from the Federal Reserve says financing is easier to get. It also says mortgages are harder to get.

I say the subjective feelings and fanciful intuitions recorded by the Fed are wrong. Let me explain why:

“Domestic banks, on balance, reported having eased their lending standards and having experienced stronger demand in most loan categories over the past three months,” said the Fed on the basis of a July survey.

Actually, though, the term “eased” is a little tricky. Eased relative to what? Even the Fed acknowledges that some forms of financing remain tough to find.

Mortgage Loans

“With respect to loans to households,” said the Fed, “moderate to large net fractions of banks reported that lending standards for all six categories of residential mortgages included in the survey (prime conforming mortgages, mortgages guaranteed by the Federal Housing Administration or the U.S. Department of Veterans Affairs, prime jumbo mortgages, subprime mortgages, nontraditional mortgages, and HELOCs) remained at least somewhat tighter than the midpoints of the ranges that those standards have occupied since 2005.”

In other words, the Fed says loans to buy real estate are hard to come by despite mortgage rates which remain not far from record lows.

Which Loans Are Easier To Get?

What has improved are “CRE” loans. This is financing for developers, such things as construction and land development loans, loans secured by nonfarm nonresidential properties, and loans secured by multifamily residential properties.

The Fed said “banks reported that they had eased their standards, on balance, on all three types of CRE loans over the past twelve months.”

Translated into plain language, the Fed is saying that developers can get all the money they want while borrowing to buy a single-family home remains an uphill battle.

But the tender feelings of loan officers are simply off base. You have to work to get a mortgage but certainly mortgages are out there. That must be the case otherwise existing home sales for June would not have been 15.2 percent higher than in 2012 — a time when cash purchases declined modestly.

The truth is that mortgages SHOULD BE difficult to get in terms of paperwork and documentation because that’s how we hold down foreclosures and delinquencies.

Just look at the latest figures from the Mortgage Bankers Association: Compared with the second quarter of 2012 the foreclosure inventory rate is down .71 percent for prime fixed loans, 2.92 percent for prime ARMs, 1.02 percent for subprime fixed financing, 4.86 percent for subprime ARMs, .55 percent for FHA mortgages and .40 percent for VA financing.

In other words, mortgages with fewer foreclosures represent less risk — and less risk leads to lower rates. Judging from recent sale activity lenders are surely making such loans.

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