Fed: Mortgages Are Harder to Get

Feb. 4, 2008— -- If you're a would-be homeowner, brace yourself for some bad news.

The Federal Reserve on Monday released a survey showing that "significant numbers" of lenders have tightened their standards for mortgage applicants.

The Fed's survey, which polled loan officers at 56 domestic banks and 23 foreign banking institutions, found that for a "prime" loan, 55 percent of domestic lenders, compared with 40 percent in October, have increased their scrutiny of potential borrowers. And if you are looking for a non-traditional loan like a subprime or an interest-only, 85 percent of the banks that issued these loans are making it harder to get one, up from 60 percent in October.

Looking for a home equity line of credit? That's going to be tougher to get as well.

Banks are even tightening lending standards for loans other than credit cards.

And as banks make it harder to borrow, loan officers report that demand for loans has decreased — consumers may realize it's harder to get a loan and they may be worried about purchasing a big-ticket item like a home when the economy may be in or headed toward a recession.

The loan officers said lenders want to help homeowners struggling with their mortgages, but doing so could be difficult. Some homeowners may be hard to contact and others might not be interested in even staying as their homes drop in value. Also, a shortage of bank employees knowledgeable in completing this type of work could also prevent the bank from finalizing any work-outs with struggling homeowners.

A majority of lenders expect current mortgages, lines of credit, even credit card and other loans to "deteriorate" in 2008, meaning the lenders expect people to struggle to make their regular payments.

Lenders also reported that 80 percent of domestic banks have tightened standards for commercial real estate loans, the highest proportion on record since the question was first posed 18 years ago.