The availability of home loans for low credit score borrowers remains very tight by historical standards but there might be some loosening in 2016 if the Federal Reserve begins raising interest rates.
“If interest rates were to rise, lenders would begin to open up the credit box in order to get more borrowers through the door,” said Sam Khater, deputy chief economist at CoreLogic, during a webinar hosted by American Banker.
But Khater said he doesn’t expect interest rates to rise very much “because the economy remains weak.”
Laurie Goodman, the housing finance director at the Urban Institute, said she expects to see a “modest expansion” in mortgage credit due to the efforts of Fannie Mae, Freddie Mac and the Federal Housing Administration to clarify their loan put-back and indemnification policies.
“I expected to see some expansion in credit as the FHA and GSEs continue to take actions to open up the credit box and lenders become more and more confident in those actions,” she said during the webinar.
Goodman noted that she expects access to mortgage will be “modestly better” next year due to rising rates because it will force lenders to reach for loan volume.
However, she said mortgage credit is “very, very tight” right now.
“We are taking less the half the credit risk we were taking in 2001,” she said.
The probability of a loan going 90-days delinquent is a little bit over 5% today, she said, compared to 12% in 200l.
Meanwhile, Khater is concerned the economic expansion might be on its last legs.
“What I worry about is potentially a recession coming before underwriting really begins to normalize as in the early 2000s. And we are stuck in his tight underwriting environment for a number of years,” he said.