Are Banks Looking to Ease Lending Standards?

With fewer home owners refinancing their mortgages because of rising interest rates, banks may soon relax their lending standards to ramp up business, according to the Mortgage Bankers Association. 

Credit availability has risen 3 percent since May — when mortgage rates began to rise — according to an MBA survey. Refinances have fallen 59 percent from a year ago, but applications for home purchases have risen 5 percent.

In recent years, tight underwriting standards have been blamed on shutting out many people from the housing market. Many potential borrowers have been unable to meet requirements for higher credit scores and larger down payments in order to qualify for a loan.

"As volumes slow, it makes sense that originators might ease some of their overlays as they now have the additional bandwidth to focus on slightly lower-quality loans or those loans that require more intense underwriting prior to approval, such as loans for self-employed individuals or investors that own multiple homes," Craig Strent, CEO of Maryland-based Apex Home Loans, told CNBC. "Competition for loans, particularly for home purchases, will continue to rise as refinances wane and originators look for continued loan volume to support the infrastructure they put in place during the recent refinance wave."

Source: “Higher Mortgage Rates May Mean Easier Credit,” CNBC (Aug. 5, 2013)