October 31, 2014

Financing Florida Real Estate

A return to standard mortgages

Borrowers are finding it tougher to qualify for a mortgage, but experts say banks are simply returning to historic standards.

Mike Vogel | 3/26/2012


[Photo: iStockphoto]
Greg McBride, senior financial analyst at Bankrate.com in North Palm Beach, has the bottom line on qualifying for a mortgage in the mid-2000s. "If you could fog a mirror, you could get a loan. I'm not sure even fogging the mirror was a requirement."

Times change. The Federal Reserve regularly surveys senior loan officers about loan demand and credit standards. The subprime category trendline disappears in 2008-09. "No one's even reporting it," says Carl Hudson, director of the center for real estate analytics at the Federal Reserve Bank of Atlanta. Non-traditional loans likewise have tumbled. Originally created as niche products — say, for the salesperson who reliably earned a big year-end bonus but didn't have enough regular monthly income for a fixed-rate mortgage — non-traditional loans moved mainstream in the boom. But in a recent Fed survey, many banks no longer offered them.

Meanwhile, in 2005, 42% of buyers made no down payment. Now, it's a negligible number. The FHA, which had less than 2% of the market in the boom, has become essentially the only game in town for low down-payment loans.

That leaves a sizable chunk of the market going back to the plain vanilla 30-year fixed. But for those on the bottom tier of the prime ladder, it's become harder to get — not just by boom standards but by historical measures. The median credit score for borrowers of 30-year fully conforming mortgages didn't change much during or after the boom. But for those borrowers in the bottom tenth of still-acceptable prime scores, credit's gotten a lot tighter since the bust.

As for those who do qualify for mortgages, borrowers report much more stringent underwriting, with lenders scrutinizing every financial detail.

Real estate agents say tighter credit standards play a direct role in holding back the recovery of the housing market. But, as McBride and others argue, loan standards in many ways have just returned to historical standards. "It's not that loan standards have increased; they've been reinstated," McBride says.

Digital Access

DIRECT DIGITAL ACCESS
Add digital to your current subscription, purchase a single ditgital issue, or start a new subscription to Florida Trend.

TABLE OF CONTENTS
An overview of the features and articles in this month's issue of Florida Trend.

ACCESS THIS ISSUE »

Florida Business News

Florida Trend Video Pick

Roberto Muñoz - Banking in Florida
Roberto Muñoz - Banking in Florida

Roberto Muñoz, president of the Florida International Bankers Association (FIBA), talks about FIBA, services the organization provides to the state's banks and issues facing banks today.

Earlier Videos | Viewpoints@FloridaTrend

Ballot Box

Walmart and Amazon are kicking off the holiday shopping season Nov. 1. Your thoughts?

  • It's too soon!
  • This news doesn't surprise me
  • Good for them - l like shopping early

See Results

Ballot Box
Subscribe