By: Krista Franks Brock, DSNews.com
Capital Economics expects the housing crisis to end this year, according to a report released Tuesday. One of the reasons: loosening credit.
The analytics firm notes the average credit score required to attain a mortgage loan is 700. While this is higher than scores required prior to the crisis, it is constant with requirements one year ago. Additionally, a Fed Senior Loan Officer Survey found credit requirements in the fourth quarter were consistent with the past three quarters. However, other market indicators point not just to a stabilization of mortgage lending standards, but also a loosening of credit availability.
Banks are now lending amounts up to 3.5 times borrower earnings. This is up from a low during the crisis of 3.2 times borrower earnings. Banks are also loosening loan-to-value ratios (LTV), which Capital Economics denotes “the clearest sign yet of an improvement in mortgage credit conditions.” In contrast to a low of 74 percent reached in mid-2010, banks are now lending at 82 percent LTV.
While credit conditions may have loosened slightly, some potential homebuyers are still struggling with credit requirements. In fact, Capital Economics points out that in November 8 percent of contract cancellations were the result of a potential buyer not qualifying for a loan.
Additionally, Capital Economics says “any improvement in credit conditions won’t be significant enough to generate actual house price gains,” and potential ramifications from the euro-zone pose a threat to future credit availability.
The Obama administration announced more disappointing numbers for its signature anti-foreclosure initiative and said Thursday that it would continue to withhold payments from two banks running the program.
Just 14,000 homeowners received trial modifications under the Home Affordable Modification Program in July, the fewest of any month since shortly after the program’s launch early in 2009. The previous low came in June. (The Treasury Department, which oversees HAMP, said 22,079 modifications in total have been reported since the June numbers came out, but some of those modifications happened in previous months.) The administration also released its second quarterly review of homeowner treatment by banks and companies that service mortgages, finding that Bank of America and JPMorgan Chase have continued to do such a bad job that incentive payments for completed modifications would be withheld.
“While tens of thousands of additional homeowners benefit from the administration’s programs each month, we need to keep the pressure on servicers to effectively assist those homeowners who are still struggling and eligible for assistance,” said Treasury official Tim Massad in a statement. “These assessments provide an unprecedented level of information about servicer performance and are designed to help more eligible homeowners walk away from this process with better results.”
Article is from AOL Real Estate.
Mortgage servicers contending with attorney general investigations and extended foreclosure delays turned more to short sales in the past year.
In August 2009, short sales accounted for 8% of all liquidations of distressed properties. That number grew to 25% by the middle of 2011, according to research from Moody’s Investors Service.
Meanwhile, the time it took from a borrower default to eventual REO liquidation grew from an average 14 months in early 2009 to 24 months by the summer of 2011. The delays pushed the timelines out and as a result, losses on the eventual sale of those properties higher. Servicers had to halt the foreclosure process in October 2010 to correct forged documents and mishandled foreclosures as part of the robo-signing scandal. Since then, new regulations from federal agencies and still ongoing negotiations between the state AGs left servicers turning toward an early sale of the property before a filing a foreclosure.
Story is from AOL Real Estate.