JPMorgan Chase & Co., the nation’s largest bank by assets, is easing mortgage lending standards in housing markets hard hit by the crash where prices are surging.
The bank lowered some down payment requirements in Florida, Nevada, Arizona and Michigan because they will “no longer be considered distressed states,” it informed smaller lenders it buys loans from in July. The second-largest U.S. mortgage lender also loosened underwriting requirements for a refinancing program for Federal Housing Administration borrowers.
As the economy rebounds and home values climb at about the fastest pace since 2006, lenders including the largest, Wells Fargo & Co., JPMorgan, Bank of America Corp., and mortgage insurers are easing the tightest credit conditions in two decades, lifting restrictions put in place after the worst real estate bust since the Great Depression. Banks are being forced to compete harder for customers after a spike in borrowing costs from near-record lows slowed refinancing by more than 70 percent and curbed what had been record profits.
“Historically, you make underwriting as tough as possible when people are lined up at the door and when the lines go away, you start loosening underwriting to get people back,” said Guy Cecala, publisher of Inside Mortgage Finance.
More than 10 percent of banks reported they loosened standards on “prime” or low-risk residential loans in recent months, according to the Federal Reserve’s July survey of senior loan officers. The average FICO score for closed loans fell to 737 in July, the lowest level since at least August 2011, according to data compiled by Pleasanton, California-based Ellie Mae. Borrowers loan-to-value and debt-to-income ratios also increased from May, signaling lenders are willing to accept more risk to maintain volume.
Wells Fargo, which originated about 1 in 4 U.S. home loans in the first half of the year, has relaxed certain credit standards and is requiring borrowers to put up less equity to buy high-priced homes.
The San Francisco-based bank began, on July 13, to offer nonconforming loans with a loan-to-value ratio of 85 percent, up from 80 percent, according to Tom Goyda, a bank spokesman. That means borrowers have to come up with less equity to get financing. The terms on the loans, which are too large for purchase by Fannie Mae and Freddie Mac, apply for new home purchases and refinancing, and don’t require mortgage insurance, Goyda said in an e-mail.
“Getting approved for a home loan hinges on a borrower’s total financial picture,” Goyda said in an e-mailed statement. “We are always evaluating our credit standards in light of market conditions and trends.”