Why have lenders tightend their requirements of late?

Question

And what kinds of requirements are they looking for now?

Answer 1

Dancing has given you a great answer. In fact many lenders are now out of business since their margins were called. Wall Street is not buying the paper in CMO'S that are sub-prime notes and wary of prime notes as well.No company has endless pockets. If I lend you a dollar and get back 3 cents a month for XX years, how long till I can lend another $? Well Wall street was giving me $1.06 when I sold it just so the could collect some interest. Since the default rate has gone up across the board and Now Wall Street is offering .97 on the dollar. Could you stay in business that way? That is why the lenders have to tighten the underwriting guidelines and stop stupid lending practices. Lenders are now looking for full documented loans to place in the portfolio so investors will go back to giving them 1.06 on the $$. A full documentation loan requires collateral, credit, and the capacity to pay. That last part includes debt ratio, job time ect all in a line. They have to have the foreclosure rates go down so they can all survive.
Hope this helps
I am a mortgage banker in TN & KY

Answer 2

Anon & Dancing 1 are both right. I read just Tuesday that he three largest sub-prime mortgage lenders suffered millions upon millions in losses due to foreclosures brought on by their own lending habits. Due to this, you can look for all lenders to tighten their requirements in the future. It's not that sub-prime lending is going to go away, it won't. But it will get tougher and require more down payment, more job stability and more of an equity situatuion for the lenders to feel warm and fuzzy again.

This will effect all lending not just sub-prime. In just the last week I have seen big jumps in the interest rates that my banks are chargeing even on prime customers.

Answer 3

Lenders have tightened their requirements due to the agencies that monitor them. The rise in foreclosures went up 72% over the previous year due to relaxed underwriting practices leaving borrowers with the inablitiy to follow through with their contracts. This has a huge effect on the nations economy, so therefore tighter requirements for lenders.

Answer 4

Federal laws changed the rules for declaring bankruptcy. So that gives banks less leniency in the way they lend. Also, with interest rates going up, lenders need to retain liquidity to be able to extend profitable loans. You may have noticed that your bills arrive much closer to the due date now than about a year ago.

Answer 5

You will see tighter lending guidelines not only on mortgages, but also on personal and auto loans. It is becuase of all of the losses that companies are taking. They will loosen up a bit once their delinquencies and losses are back in line.