Credit Requirements Loosening, Mortgages Becoming Easier to Obtain

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Potential homebuyers are finally finding it easier to obtain a mortgage after years of needing to have nearly pristine credit.

The initial crackdown came in the wake of the housing market crash, as lenders were hit with lawsuits and faced buybacks, and therefore tightened the belt on whom they lent money to.

Now, however, that is all changing.

“Now that we know more of the rules than we did in the past, you’re seeing credit widening to a wider spectrum,” Greg Gwizdz, executive vice president at Wells Fargo Mortgage, told CNBC.

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Officials Agree: Credit Scoring System Needs Improvement

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The National Association of Realtors hosted a meeting of real estate and mortgage industry experts recently and found that many in attendance were in favor of a complete overhaul of the current credit scoring system, arguing that it’s essential for the future of the housing industry.

“[It] needs to change to reflect how people live their lives today, or millions of people will continue to fall outside traditional calculation models and not be able to become home owners,” Housing and Urban Development (HUD) secretary Julian Castro told the group.

The most important shift that needs to take place, the group suggested, is taking into account “new ways of analyzing data to reflect the responsibility people show in their lives that is predictive of future behavior and paying down a mortgage.”

“It’s such a critical topic,” NAR president Chris Polychron said in closing the meeting. “We’d like to see these scoring models that rely on non-traditional histories. We just have a lot to do.”

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Report: Majority of Consumers Have Subprime Credit Scores

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The Corporation for Enterprise Development released a new report on Thursday, which revealed that many Americans are still struggling to improve their credit, despite a growing job market and overall better economy.

“In the world of consumer credit scoring, if you mess up, it’s a seven- to 10-year penalty,” explained John Ulzheimer, president of consumer education at CreditSesame.com.

As a result, these consumers often see their loan applications denied, or if they are borrowing, they don’t get to take advantage of the same low interest rates that borrowers with better scores are offered.

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Alternate Lenders Gaining Steam Among Millennials

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According to a new report by CNN Money, there is a current trend in the housing market toward alternate lending opportunities, especially as many individuals may not qualify for traditional loans.

In the last week alone, two new companies – Lending Club and OnDeck Capital – went public, earning $870 million and $200 million respectively.

This shift is especially prevalent among the millennial crowd.

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Homeowners Earn $1.7 Trillion Equity Bonus

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According to a new report by Zillow, homeowners in the United States earned a collective $1.7 trillion in additional  equity in 2014.

The gains came even despite the fact that home prices slowed down dramatically over the past year.

The report also noted that some homeowners tapped into the new equity already, nearly immediately taking out the money.

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U.S. Consumer Financial Protection Bureau Nabs Loan Companies for Fraud

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Multiple loan companies were found to have engaged in illegal acts surrounding student loans and mortgages, the U.S. Consumer Financial Protection Bureau announced on Tuesday.

According to MSNBC, “The CFPB found that some student loan servicers inflated minimum payments due, made illegal debt collection calls or charged unlawful late fees, even after borrowers had made payments during the grace period.”

The report did not name the companies in question, however.

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Refinancing Remains Tough in Current Housing Market

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Ben S. Bernanke, former chairman of the Federal Reserve, revealed that attempting to refinance a home loan continues to be so difficult in the current market that even he got turned down from a refi request recently.

“I recently tried to refinance my mortgage and I was unsuccessful in doing so,” he said. “I’m not making that up.”

In fact, Bernanke believes that lenders “may have gone a little bit too far on mortgage credit conditions.”

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Jumbo Mortgages Getting Cheaper and Easier

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In recent months, it has become cheaper and easier for individuals to take out jumbo mortgages – loans of $417,000 or more (or $625,000-plus in more expensive markets).

Whereas a 20% down payment and a 700 credit score used to be required on all jumbo loans, some lenders are now accepting credit scores as low as 650 and just 10% down, even foregoing mortgage insurance.

“That was unheard of 12 months ago,” John Walsh, owner of Total Mortgage Service, told CNN.

Additionally, interest rates on these loans currently average 4.24%, as compared to 4.36% on a conventional 30-year fixed mortgage.

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On Tap: Lowered Credit Standards, Lesser Demand for Mortgages 

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In the most recent Mortgage Lender Sentiment Survey conducted by Fannie Mae, the lending company found that attitudes are changing in the areas of credit standards and mortgage demand.

According to Mortgage News Daily, large lenders are set to ease up on their credit standards for mortgages, while organizations of all sizes expect to see less of a demand for mortgages in the coming month.

“Lenders’ diminished purchase mortgage demand outlook is broadly in line with the softened consumer housing sentiment seen in the August National Housing Survey results released last week,” Doug Duncan, senior vice president and chief economist at Fannie Mae, told the mortgage news site. “Historically, as lenders face a more competitive market for loan volume, it’s not uncommon to see some loosening in the lending standards; however, this time, the easing will likely be around the edges.”

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Lenders Unlikely to Use New FICO 9

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Although the new FICO credit model, FICO 9, has been met with much optimism, it is unlikely that it will be used any time in the immediate future.

The new model could boost individuals’ scores by as many as 25 points by essentially ignoring paid collections and paying little attention to paid and unpaid medical debt.

While realtors love the idea of this more borrower-friendly model, lenders have been a bit more reserved in the wake of the recent mortgage crisis.

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