Update on credit conditions

Fannie Mae and Freddie Mac economists give update on credit conditions:

Even though subprime lending has dried up, there are still plenty of mortgages available — as long as borrowers meet certain conditions. That was the message of Freddie Mac Chief Economist Frank Nothaft in a presentation to the National Association of Home Builders on Oct. 22.

“I think the good news is that conventional conforming and FHA mortgage rates are still relatively affordable,” Nothaft said. “However, there are some caveats.”

Those stipulations are that borrowers 1) make a down payment, 2) have good credit, 3) apply for a conventional, conforming loan and 4) meet full documentation underwriting standards.

“You can get very good rates and there’s actually plenty of credit available in the marketplace for an applicant who meets those requirements,” Nothaft said.

Borrowers can even get jumbo loans if they meet those criteria — although there will be more underwriting and the products will cost more, he said.

Banks have been tightening their credit standards each quarter for the last year and a half for all loans, including prime ones, according to the Federal Reserve Board’s Senior Loan Officer Survey. The reason? Even though borrowers may be prime from a credit perspective, they may be buying in areas where home prices are falling and that leads to tightened standards, said Doug Duncan, Fannie Mae chief economist.

However, Duncan said there are signs banks may stop tightening their mortgage standards.

“I think we’ll probably see the peaking of [credit tightening this quarter],” Duncan said. “I think if all these efforts to increase liquidity are starting to be successful, you’ll start to see those numbers flatten out and ultimately tail off.”