Mortgages: Lenders Tighten Standards

Mortgage lenders are beginning to scrutinize borrowers more closely, causing some loan applicants, even those with good credit, to face higher costs and more hassles.

As the number of delinquent mortgages climbs, lenders have tightened their standards for issuing loans, including such well-publicized moves as raising minimum credit scores and cutting back on 100% financing and low-documentation loans. Now, some lenders are probing more intently would-be borrowers' finances. They are taking a tougher look at how much the property a borrower wants to buy is worth. They are peering further into clients' pasts for credit problems and requiring more in-depth reviews of borrowers who say they are self-employed.

Mortgage lenders say they are tightening standards in response to pressure from mortgage insurers, investment banks and investors who buy mortgage-backed securities. Spooked by rising delinquencies, Wall Street is now pushing lenders to beef up their underwriting.  Looser standards weren't much of a problem when home prices were climbing. But as the housing market has cooled, more borrowers are winding up in trouble.

Lenders are also delving deeper into borrowers' employment and credit histories.  In recent years lenders would often look back just 12 months at a borrower's mortgage payment history.  Now, many lenders are looking at two years' of mortgage payments and reviewing information on credit card payments and installment loans.

Are you considering a mortgage?  Does news of tougher standards make you think twice about applying?  We'd love to hear your thoughts and comments about this.  Just click the "Comment" link below and tell us what you think.

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