The analytics firm notes the average credit score required to attain a mortgage loan is 700. While this is higher than scores required prior to the crisis, it is constant with requirements one year ago.

Additionally, a Fed Senior Loan Officer Survey found credit requirements in the fourth quarter were consistent with the past three quarters.

However, other market indicators point not just to a stabilization of mortgage lending standards, but also a loosening of credit availability.

Banks are now lending amounts up to 3.5 times borrower earnings. This is up from a low during the crisis of 3.2 times borrower earnings.

Banks are also loosening loan-to-value ratios (LTV), which Capital Economics denotes “the clearest sign yet of an improvement in mortgage credit conditions.”

In contrast to a low of 74 percent reached in mid-2010, banks are now lending at 82 percent LTV.

While credit conditions may have loosened slightly, some potential homebuyers are still struggling with credit requirements. In fact, Capital Economics points out that in November 8 percent of contract cancellations were the result of a potential buyer not qualifying for a loan.

Additionally, Capital Economics says “any improvement in credit conditions won’t be significant enough to generation actual house price gains,” and potential ramifications from the euro-zone pose a threat to future credit availability.

Preliminary results of the in-depth review into the practices of the nation’s largest mortgage companies are expected to be released next month, Bernanke said in remarks to a housing-finance conference in Arlington, Va.

“We are looking intensively at the firms’ policies, procedures and internal controls related to foreclosures and seeking to determine whether systematic weaknesses are leading to improper foreclosures,” Bernanke said. “We take violation of proper procedures very seriously,” he added.

The central bank’s decision adds weight to federal and state investigations into whether banks used flawed documents to foreclosure on homeowners.

Attorneys general in all 50 states plus the District of Columbia are jointly investigating whether paperwork and legal procedures were handled properly. At the federal level, the Treasury Department’s Office of the Comptroller of the Currency last month asked seven big banks to examine their foreclosure practices. The OCC and the Federal Deposit Insurance Corp. are also working with the Fed on its examination.

In addition to probing the banks handling of foreclosure documents, Fed staffers and other federal agencies are evaluating the potential effects of the foreclosure debacle on the real-estate market and on financial institutions, Bernanke said.

The Federal Reserve oversees bank holding companies — typically Wall Street’s biggest banks — including Citigroup, Bank of America, JPMorgan Chase & Co., and Wells Fargo.

The inquiries come as Bank of America and Ally Financial Inc.’s GMAC Mortgage have resumed processing foreclosures, after halting them temporarily to review documents. Both lender face allegations that employees signed but didn’t read foreclosure documents that may have contained errors. Other companies, including PNC Financial Services Inc. and JPMorgan, have halted tens of thousands of foreclosures after similar practices became public.

The federal agencies have a range of options at their disposal. They include issuing a “cease and desist” order requiring a company to stop engaging in a specific practice. They can impose fines on the companies. Agencies also can take less drastic actions, such as crafting a plan with the company to fix any problems.

Bernanke didn’t provide details in his speech.

According to people familiar with the examination, the banking agencies are looking into whether companies had controls in place when foreclosure documents were signed, what procedures were in place to proper handle documents, and whether employees involved in the foreclosure process were adequately trained.

Dubious mortgage practices and lax lending standards were blamed for contributing to a housing bubble that eventually burst and thrust the economy from 2007-2009 into the worst recession since the 1930s. Many Americans took out home loans that they didn’t understand and bought homes that they couldn’t afford.

As a result, foreclosures have soared to record highs. It’s one of the negative forces restraining the economy’s ability to get back on sounder footing.

Now more than 20 percent of borrowers owe more than their home is worth, and an additional 33 percent have equity cushions of 10 percent or less, putting them at risk should house prices decline much further, Bernanke said.

“With housing markets still weak, high levels of mortgage distress may well persist for some time to come,” Bernanke warned.

The 30 year rate fell from 4.75 to 4.69 this week. Two weeks ago the 30 year rate was sitting at 4.72. What’s interesting is that over the last month, when a lot of people have been talking about how rates are about to start rising, we are instead breaking records with mortgage rate lows.
We mostly concentrate on the 30 year rate because it is the most widely used mortgage product. But in addition to the 30 year rate hitting an all time low the 3 other major mortgage products all reached new all time lows as well. The 15 year dropped from 4.20 to 4.13. The 5 and 1 year arms dropped from 3.89 to 3.84 (5 year arm) and 3.82 to 3.77 (1 year arm). Below are rates from the weeks from May 27, 2010 to Jun 24, 2010

Jun 24, 2010
30-fixed 4.69 15-fixed 4.13 5 ARM 3.84 1 ARM 3.77

Jun 17, 2010
30-fixed 4.75 15-fixed 4.20 5 ARM 3.89 1 ARM 3.82

Jun 10, 2010
30-fixed 4.72 15-fixed 4.17 5 ARM 3.92 1 ARM 3.91

Jun 03, 2010
30-fixed 4.79 15-fixed 4.20 5 ARM 3.94 1 ARM 3.95

May 13, 2010
30-fixed 4.93 15-fixed 4.30 5 ARM 3.95 1 ARM 4.02

So in addition to looking at mortgage rates it’s also helpful to look at mortgage payments. We took today’s rates and translated them into a mortgage payment for a 200k loan. We also did the same things with rates from May 13th.

Jun 24
30-year $1036.07
15-year $1492.43
5-year ARM $936.47
1-year ARM $928.5

May 13
30-year $1065.1
15-year $1509.62
5-year ARM $949.07
1-year ARM $957.13

So although rates were already pretty low on May 13th today a payment on a 200k loan is about $30 less a month for a drop of a little less than 3 percent.

So what is going to happen over the next few months? Its certainly possible rates could fall a little more and we could break some new records with mortgage rates. I would be surprised if rates fell below 4.25 unless the economy went into a significant tailspin. On the other hand once the economy recovers rates should increase rapidly. And in inflation spirals out of control I could see rates jumping into the double digits.

Published on Saturday, June 26, 2010, 6:25 PM Last Update: 2 day(s) ago by Kimbrough Gray

Written by Phoebe Chongchua

Contact me today to sit down with you to explain this process in detail.