Banks Make Home Loans Difficult
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UPDATED: Nov 8, 2012
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While interest rates are at record lows and housing prices are beginning to inch higher, banks still haven’t made it easier to borrow a home loan, according to a recent survey of banking leaders.
According to a Federal Reserve survey of senior loan officers. banks across America have made it easier to borrow loans for businesses, real estate and carsm, but not homes.
Despite this persistent difficulty to obtain a home loan, banks have noticed an increased demand for mortgages. This has been moving hand-in-hand with data showing that home sales and refinances have improved.
The Federal Reserve found that standards for FHA home loans have become tougher, especially for borrowers with low credit scores. The majority of senior loan officers surveyed said that they were unlikely to approve a home loan for an applicant with a score below 580, according to Market Watch.
Banks were found to be hesitant to lend mortgages because of “putback risk,” which refers to the risk that the FHA would force lenders to repurchase bad home loans.
Additionally, demand for business loans weakened slightly in the third quarter of 2012 in spite of banks easing their borrowing requirements. This is the first time demand for business loans has fallen since 2011.
Paul Ashworth, chief U.S. economist at Capital Economics, said that weak growth in the global economy combined with the looming fiscal cliff have caused businesses to be reluctant to borrow more money, according to Market Watch.
According to David Silver, a chief economist at JPMorgan Chase & Co, weak growth in the global economy is weighing more heavily on corporations that maintain holdings outside of the U.S.
In spite of an economic slowdown, demand for commercial real estate loans and auto loans rose.
While over the last 12 months banks have sparsely lent to businesses, reduced global competition has resulted in a recent increase in business lending. Many banks said they intend to diversify into new sectors of the market.
The Federal Reserve also found that U.S. banks tightened lending to financial institutions and corporations in Europe where the ongoing Eurozone Crisis continues to cause problems.