Tighter Lending Standards on Home Mortgages

At the same time that home mortgage rates have been falling, lenders' credit standards have been rising. Prime borrowers with clean credit records will not be affected but those with flaws in their credit record will find that the low rates advertised do not apply to them. Even a borrower with a AAA credit record who is buying a million dollar home may find that the low rate does not apply if he is self-employed and finds it difficult to pull together the records required justifying the low-rate loan.

In addition, lenders are increasingly wary of consumers applying for "no-document" loans. Now they are requiring a credit score of 660 or more, up from 640 earlier. Chase Manhattan Mortgage now seeks a credit score of 680 for similar loans. It is also tightening up on appraisals by limiting the "comparables" to homes that have been sold during the previous six months. Lenders are also tightening up on low down payments, With one-fourth of the loans being made today having down payments of less than ten percent, there is room for greater stringency; In the late 1980s and early 1990s, such loans accounted for only 5 to 10 percent of the market.