Mortgage market opening up; credit scores; down payment © Digital Vision Ltd.

The Basics

Is the mortgage market finally coming back?

The answer is important, because the housing inventory won't shrink until more people are able to qualify for loans. Here are 3 reasons for optimism.

By SmartMoney

After more than two years of misery in the housing market, the worst may finally be over.

A handful of recent developments in the mortgage market all point to an easing of lending standards, which have been onerously high since 2008.

Private lenders and the federal government have reinvigorated the jumbo mortgage market, making bigger loans more available to more borrowers. And in general, a would-be homeowner can now qualify for a loan with lower credit scores and make a smaller down payment -- in some cases, as low as 5%. Those moves, taken together, mean that more borrowers have access to mortgages, a necessary precondition for housing to rebound.

"When you see those moves on the upswing, it gives you a hint of what's coming later on," says Chip Cummings, the president of Northwind Financial in Grand Rapids, Mich., a consulting firm for mortgage and real-estate companies.

Of course, these are only the first signs of what could be a very long recovery. So far, the changes in the private lending market are aimed strictly at the best loan applicants, those with credit scores of 700 or higher. Riskier borrowers are still undesirable in the eyes of the banks -- even the Federal Housing Administration has raised the floor on credit scores for prospective applicants.

And without a drop in unemployment and other economic improvements, demand for the new mortgages may not keep pace with supply. But the moves do suggest that lenders, at least, are more willing -- and the easier it is to get a loan, the easier it is to get a house.

Here's a closer look at the three changes:

More jumbo mortgages

Before 2007, jumbo mortgages -- any loan over $417,000 in average markets -- made up 22% of the mortgage market. Today, they're about a 6% sliver. But private lenders are getting back into the jumbo market. These supersize loans were up 3% from January to May, according to the most recent data available from CoreLogic, a mortgage data company. Wells Fargo almost doubled its jumbo lending, to $3.7 billion, in the second quarter, compared with a year ago, and Chase was up 16% for the same period with plans to keep growing.

The sheer size of these loans suggests more risk for the lender. (If the borrower defaults, the lender could take a bigger hit.) But for the high-quality borrower, it is a risk the banks now seem willing to take, says Keith Gumbinger, a vice president at HSH Associates, a mortgage data tracking company. If foreclosures are low, private lenders are likely to extend jumbo mortgages to a broader group of borrowers in the next year or so. Meanwhile, smaller local lenders have also gotten into the market, Cummings says.

For better borrowers, this means more options. A Fannie- or Freddie-backed mortgage can go up to $729,750, but private lenders can go higher when they keep the loan on their books -- an advantage for someone house hunting in expensive cities such as New York, Boston or Washington (and a potential boon for those housing markets overall). Interest rates on jumbo mortgages backed by private lenders are about 1 percentage point higher than those backed by the government.

Continued: Smaller down payments 

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11/05/2010 4:44 PM

Lets not forget about the manufactured housing market.

Its been impossible to get a loan or refinance a manufactured since January. In fact lenders stopped approving manufactured home loans in october 2009, preparing for FHA to stop underwriting them.  I dont know what pecentage of homes out there are manufactured homes, but im sure its a good portion of the market.

10/28/2010 12:01 PM
The writer of this article needs to check the facts.  I have been in the mortgage biz now for 15 years.  I have NEVER seen it harder to gain mortgage approval.  On conventional loans, you need to put down 20% for have a 680 credit score (so you can get PMI). On government loan (FHA) you now need a 620 score.  Within 90 days, most all lenders will require a 640 score.  How..or where...are these "lower credit scores" mentioned in this article??? All the higher credit scores when the average credit score from americans 25-50 years old in going DOWN each year.  Furthermore, the 3 credit reporting companies (Trans Union, Equifax, & Experian) are loosely regulated and can not keep up with the demand for consumers wanting fair credit reporting......Just aint happening folks!!  Credit score requirements are RISING, national consumer scores of consumers in the home buying age range, LOWERING....This article has it backwards!
10/28/2010 10:39 AM
A friend of mine bought  a new house around $360,000 just 4 years ago, now the house is valued in $185,000.  What happened with de difference? Does the builder overpriced the sale house? Does the realtor was part of this? Does the realty system pump those prices up? He is now under water and I am  complete sure he is crazy looking for a great idea to save his house.
10/28/2010 9:46 AM
If and when economic conditions get better I wish I wish. What a bunch of baloney. The foreclosure as of today is breaking records and jobs markets are good ...In China!.
10/28/2010 8:49 AM
Here are two things to consider before drawing a conclusion that the housing market is rebounding.  First and foremost is that Fannie Mae and Freddie Mac are in the same ole lending practices as before; depending on the taxpayer bail out once again when they get in trouble again.  Secondly; those who are buying depressed properties now are banking on selling these properties if and when a full recovery comes about.  That in their case; most often; would need to be sooner than later.  Problem is; that with the two mortgage giants I mentioned; watering down the market; recovery will be much later and not sooner.  The only way to have the housing market fully recover is to put people back to work in real productive jobs; and finally getting rid of Fannie Mae and Freddie Mac; and realizing that one must be able to afford buying a home before one can undertake the effort to buy a home.  Very Simply; you can't buy what you can Not afford.
10/26/2010 1:14 PM

I don't know why they think this is "good news". What they're saying is that we're sliding back into the "lazy lending" practices of a few years ago. Lending standards are not "onerously high" when they require credit-worthiness and a 20% down payment. These are NORMAL!!!


As has been said before, if you don't have the discipline and the werewithal to save up a 20% down payment, you probably aren't a good risk to pay off a mortgage--especially​ in the current economy.

10/26/2010 11:02 AM
There are still plenty of people who have a job who are renters.  A more secure job mkt would do a lot turn the housing mkt around, because even those w/ jobs are scared to commit because of the chance of job loss or transfer or pay cut.
10/26/2010 10:21 AM
These articles are ridiculous! How on earth can ANYTHING "come back" if there is record unemployment? It's relatively simple..If people aren't making money, they can't spend money..It amazes me that people can invent an article and not look at the big
10/26/2010 10:15 AM
The other day I looked at a graph showing median house prices for the Seattle area and they are still on a downward trend though the month to month change is not as steep of as earlier.  I don't think we have reached the bottom yet.
10/26/2010 9:56 AM

I agree with marketguy...whomever​ does your research and writing here is off base. As a mortgage broker I can tell you that after the real estate crash, there were new higher underwriting guidelines in place as far as credit scoring and loan to values BUT those guidelines have NOT eased one bit.

Home values is what continues to hurt homeowners and until the job market recovers, your "feel good" articles are false. But on the bright side, if you fool enough people, maybe my pipeline will start to look a little better.

10/26/2010 9:44 AM
The real problem is that banks are using foreclosures and short sales as 'comps' to determine home values. A qualified borrower is a qualified borrower -- but a "fair-market" transaction is a very different animal from a foreclosure or short sale. If a buyer is willing to pay the fair market value for a home that is not in foreclosure, and s/he is otherwise qualified for the loan, the bank should not be able to step in and quash the deal based on an appraisal that is skewed by foreclosures and short sales. Prohibiting banks from doing this would go a long way towards keeping home values afloat in communities hard hit by foreclosures.
10/26/2010 9:27 AM
No, I am in housing for a career. I wish, but no. The true housing price bubble has yet to burst they continue to fill it with hot air, Incomes and joblessness will bring the prices down along with more strict loan verification. The banks do not want the prices to fall more along with the government so you have the big guns doing what they can to keep it at an artificial level, they can postpone it but not stop it. DUH.
10/26/2010 8:16 AM

Grab this off line...

In the past few days I have read, in a couple of different credible sources, about proposals to end the home mortgage interest deduction. From the individual’s perspective, the home mortgage deduction is great, especially if you have bought more house than you really can afford, and are in the early stages of paying it off.

But from a tax and economic policy standpoint, its benefits are distorted, and it surely had a part in the overbuilding of the last 10 years. The bottom line is that it costs $130 billion a year, and that most of it goes to high-income people. Now that we’ve got a big deficit to fix, maybe it’s time to reshape the benefits to make the subsidy work harder.


That's probably how they figure they will pay for healthcare. Don't shoot the messenger.

10/26/2010 8:07 AM
Not if they take away the mortgage deduction as some are proposing... yikes, renting will be in, home builders will be broke, and the housing market will really hit bottom.
10/26/2010 7:26 AM
You idiots at MSN (see: administration puppets/shills) are part of the problem.  Stop pushing these "feel good" stories about housing and "recovery" when this has been nothing but a Federal Reserve driven market.  Unemployment is getting worse, as is poverty, increased (record) food stamp use, states in near default, Fannie/Freddie and banks are insolvent but protected by "new" accounting rules (as in make up your own numbers) and the mortgage mess has just started.  Save it MSN, the masses are fully aware of your propaganda driven agenda.
10/26/2010 7:06 AM

People with excellent credit scores have never had a problem getting a loan.  The banks are just worried now because those folks basically don't want to go into debt.

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