Despite Recovery, Many Find Home Loans Still Hard To Get

Feb 17, 2015
Originally published on February 20, 2015 1:54 pm

It's been seven years since the housing crash. The housing market and the economy are both recovering. But housing advocates say you still have to have a near perfect credit score to get a loan from a major bank.

At first look, it seems like the trouble in the housing market has quieted down. There are fewer foreclosures. Home prices have stabilized and risen. But, as any parent with young kids will tell you, when things get too quiet that can be a bad sign.

Mike Calhoun, the president of the Center for Responsible Lending, says that's basically what's going on here.

"This has been a quiet disaster," he says. "Average families are unable to get home loans. That includes everyone from new households. It includes people who lost their job through the recession and [are] trying to get back into homeownership now that they're back on their feet and should qualify for mortgages."

And Calhoun says there are a lot of people like that who can't qualify for home loans because of overly tight lending standards.

"That is pushing more than a million people a year out of being able to get a home loan," he says.

One measuring stick that Calhoun is using is credit scores. He notes that most home loans made by banks and other lenders are routed through the mortgage giants Fannie Mae and Freddie Mac. Fannie and Freddie are a key gateway that loans have to pass through to get approved and guaranteed. And Calhoun says the average credit score for borrowers who get those loans is now around 750.

"To put that in perspective, the average American household has a credit score of under 700," he says.

Calhoun says before the housing bubble the average credit score for people getting home loans was around 700, so many average Americans could qualify.

Why do people need credit scores that are so much higher today?

"I think it is preventing people from getting into homeownership, but it is not a function of Fannie and Freddie's credit box being too narrow," says Mel Watt, the director of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac. "It's the function of lenders being unwilling to lend."

Watt is saying the loan requirements imposed by Fannie and Freddie are not overly restrictive.

Some housing advocates would like them loosened up a bit more. Conservative watchdogs say no. They say government policies went too far promoting homeownership in the past.

Watt says he's striving to strike the right balance. But in any case, he says at this point the real bottleneck is with the banks.

"The challenge is to get lenders to make loans," Watt says.

Calhoun says JPMorgan Chase and Bank of America in particular have pulled back sharply on mortgage lending. Both banks declined interviews. Both have been hit with multibillion-dollar settlements over loans that went bad.

David Stevens, CEO of the Mortgage Bankers Association, says in recent years some banks have been lending more. But, he says, "the larger banks paid an extraordinary amount of money in settlements and fines and those that dealt with the most amount of punitive response have greater trepidation. They're trying to make certain that that never happens again."

Watt says the banks don't need to be so nervous. His agency recently worked with Fannie and Freddie to spell out more clearly how lenders can avoid legal trouble and make more loans.

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Our next story starts with this question - if you're an American with a good job, why is it still so hard to get a mortgage? It's been seven years since the housing crash and the housing market and the economy are both recovering. But housing advocates say you still have to have a near perfect credit score to get a home loan from a major bank. NPR's Chris Arnold reports.

CHRIS ARNOLD, BYLINE: At first look, it seems like the trouble in the housing market's quieted down. There are fewer foreclosures, home prices have stabilized and even risen back up a bit. But, as any parent with young kids will tell you, when things get too quiet that can be a bad sign. Mike Calhoun is the president of the Center for Responsible Lending. He says that's basically what's going on here.

MIKE CALHOUN: This has been a quiet disaster. Average families are unable to get home loans. That includes everyone from new households. It includes people who lost their job through the recession and are trying to get back into homeownership now that they're back on their feet and should qualify for mortgages.

ARNOLD: And Calhoun says there are a lot of people like that who can't qualify for home loans because of overly tight lending standards.

CALHOUN: That is pushing more than a million people a year out of being able to get a home loan.

ARNOLD: One measuring stick that Calhoun's using here is a person's credit score. He says most home loans getting made by banks and other lenders are routed through the mortgage giants Fannie Mae and Freddie Mac. They're a key gateway that loans have to pass through to get approved and guaranteed. And Calhoun says the average credit score for borrowers getting those loans is now around 750.

CALHOUN: To put that in perspective, the average American household has a credit score of under 700.

ARNOLD: Calhoun says back before the housing bubble in just normal, regular old times, the average credit score for people getting home loans was around 700 and so many average Americans could qualify. So why do people need credit scores that are so much higher today? To find out we sat down with Mel Watt. He's the director of the regulatory agency overseeing Fannie Mae and Freddie Mac.

MEL WATT: Well, I think it is preventing people from getting into home ownership, but it is not a function of Fannie and Freddie's credit box being too narrow. It's the function of lenders being unwilling to lend.

ARNOLD: Mel Watt is saying that the loan requirements imposed by Fannie and Freddie are not overly restrictive. Some housing advocates would like to see them loosened up a bit more. Conservative watchdogs say no. They say we went too far promoting homeownership in the past. Mel Watt says he's striving to strike the right balance there. But in any case, he says at this point the real bottleneck is with the banks.

WATT: The challenge is to get lenders to make loans.

ARNOLD: Mike Calhoun says J.P. Morgan Chase and Bank of America in particular have pulled back sharply on mortgage lending. Both banks declined interviews. And both have also been hit with multibillion-dollar settlements over loans that went bad. David Stevens is the CEO of the Mortgage Bankers Association. He says in recent years some banks have been lending more, but...

DAVID STEVENS: The larger banks paid an extraordinary amount of money in settlements and fines and those that dealt with the most amount of punitive response have greater trepidation. They're trying to make certain that that never happens again.

ARNOLD: Mel Watt for his part says the banks don't need to be so nervous. The Federal Housing Finance Agency that he runs recently worked with Fannie and Freddie to spell out more clearly just how lenders can avoid legal trouble and at the same time make more home loans. Chris Arnold, NPR News. Transcript provided by NPR, Copyright NPR.