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Douglas Lenski

Lenders Consider Lower Credit Scores

Wednesday, October 16, 2013 - Article by: Douglas Lenski - Wholesale Mortgage Services of Wisconsin - Message

Wisconsin Mortgage Lenders tightened credit score requirements in 2008 to reduce potential foreclosures. At that time, their investors were clamoring to reduce losses. The tidal wave of foreclosures had just began and five years later the water is receding.

In August of 2008, the 30 year mortgage rate was 6.5%. In April of 2009, just 7 months later, the same rate was 4.75%. The race to refinance was on and would not stop until the beginning of this year. Lenders were foreclosing on some borrowers and refinancing on most others. The avalanche of refinancing applications has dried up and so has the stream of foreclosures. During the 2008-2010 first time home buyers stayed away from the markets as fear of the process and the steady decline of home values paralyzed the housing markets.

Fast forward to today and the landscape has changed. Home values are stable and in the hardest hit markets appreciating rather nicely. The first time home buyer is confident and in a better financial and credit position. You have speculators buying and rehabbing properties and burning up old inventory. The housing market has recovered. Well it was recovering until the government intervened.

The Fed in their infinite wisdom decided the economy was back and the housing market had recovered. They started talking of tapering the purchases of mortgage backed securities about 6 months ago. This started the steady upward accent of rates from 3.375% on a 30 year to 4.5%. The last time rates were at 4.5% was in 2011. That means everyone who could refinance did so between 2011 and the beginning of 2013. The refinance well had run dry. What were the lenders to do but layoff thousands of people hired to process the stream of refinances? The game was over.

Lenders have now realized that the 25% of homeowners that were either underwater or had less than perfect credit were untapped. Don't change the game, change the rules. Lenders have now started to work on creating programs to allow lower score borrowers to obtain credit. You will not get the same rate or PMI as the great credit score borrower but, you can refinance.

Consider that the average rate in 2008 was 6.5% and it is now 4.25% there is a whole new market waiting to get tapped. The largest lenders in the country are in a race to open up the flood gates even if it is a trickle instead of a massive flow.

What does this mean to borrowers? This from The average credit score among borrowers who received a mortgage in September was 732, down from a peak of 750 a year prior, according to new data released today by Ellie Mae, which provides mortgage lenders with loan origination systems. Anyone who has ever tried to fine tune a television or set a satellite knows that you turn the dial very slow to get the clearest picture. Lenders are starting the slow turn in order to increase volume.

The slowest time of year always seems to be around Thanksgiving and lasts until after the first of the year. That is when lenders will really start to feel the pressure to turn the knob more quickly. It will never be like it was in the first decade of the new century but, we should start to see more borrowers close to 700 start getting mortgages.

Mortgage rates are very low by historical standards. Take advantage while you can. People who had lost their job recently, went to a single household income, or had a medical problem were the people who really wished they would have refinanced and not waited for that .125% better in rates. If you can improve your financial position and it does not cost you much out of pocket, then it is time.

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