Despite that credit conditions that have thawed some since the end of the recession, and broadening qualifications for many different loan types, mortgage lending remains extremely tight, according to a report from the Wall Street Journal. As a result, the Federal Reserve Board is mulling strategies for encouraging more lending.
Already, the regulator has announced its plans to keep short-term interest rates at close to zero percent at least through the end of 2014, and has similarly tried to cut long-term interest rates by buying up more than $2.7 trillion worth mortgage and government bonds, the report said. Fed chairman Ben Bernanke recently noted that the central bank could buy more bonds as well, though there is a bit of concern from some experts that doing so wouldn’t have as much of an impact as hoped.
“I’ve taken a position of some skepticism, at least under the current conditions, that more policy action would make that much of a difference,” Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, told the newspaper in May. However, Lockhart has since noted that he would be in favor of more action if conditions worsened.
Already, housing affordability is at an all-time high, with interest rates hovering at or near record lows and below 4 percent for the last several months, and home prices still quite low, the report said. Nonetheless, borrowers are being held back by lenders. In all, 83 percent of financial institutions say they’re less likely now to extend credit to consumers with credit ratings of 620 and a down payment totaling 10 percent of their total loan value than they were in 2006.
Meanwhile, lenders for credit cards, auto loans and other lines of credit have significantly broadened qualifications since the end of the recession, giving millions of subprime borrowers access to lines of credit they could not have tapped during or immediately following the recent recession. Many have seen instances of delinquency and default drop significantly during that time.
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