JPMorgan Eases Lending; Investors Make Way for First-Time Buyers

by Madhusmita Bora

 

Banks are Easing Lending Regulations

Here’s some good news for markets that are seeing a hike in home prices. JPMorgan Chase & Co., the country’s second largest mortgage lender, is easing their lending standards in those markets, thereby raising the hope for many potential buyers to become homeowners.

According to Bloomberg, the bank lowered its down payment requirements in Florida, Nevada, Arizona and Michigan. It said that those markets are no longer considered

“distressed.” The bank also lowered underwriting requirements for a refinancing program that caters to Federal Housing Administration borrowers.

JPMorgan is in good company. With the economy slowly rebounding and home prices and employment inching upward, other lenders such as Wells Fargo & Co. and Bank of America Corp. are also relaxing their lending standards. Financial institutions tightened their regulations and enforced the strictest lending guidelines in two decades after the housing collapse. To help the market recover, the Fed tried keeping interest rates near historic lows. And that seems to have worked.

With recovery underway, rates are rising again. This has put borrowers on the decline, making lenders more competitive in trying to woo customers.

“Historically, you make underwriting as tough as possible when people are lined up at the door and when the lines go away, you start loosening underwriting to get people back,” Guy Cecala, publisher of Inside Mortgage Finance, told Bloomberg. According to a recent Federal Reserve survey, more than 10 percent of banks have eased their lending regulations on low-risk residential loans.

Investors Backing Off

Now that home prices are ticking up, the droves of investors lapping up homes at bargain prices seem to be tapering off. That has thrown the doors wide open for first-time buyers, who were losing out in the competition to Wall Street investors.

“Investors helped stabilize a housing market that was in free-fall and they did so by taking advantage of fire-sale home prices,” Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. told Reuters. “Now you see fewer bargain prices in the market and that’s a reason investor demand is coming off its peak.”

In June, investors made up 20 percent of all home buying. That’s the lowest since September 2012, according to Reuters. The plateauing of interest seems to be here to stay.

According to a recent survey by polling firm ORC International, 48 percent of investors surveyed said they will reduce home buying over the next year. That’s up from 30 percent in a similar poll conducted 10 months before.

This is all good news for first-time buyers, who were elbowed off the market by cash-heavy investors lapping up good deals. Sellers and lenders looking to quickly rid inventory from the market courted investors over first-time buyers, who were having a hard time getting approvals for mortgages. The investors stepped in and rescued the market by reducing inventory and thereby stabilizing prices. But, with mortgage rates rising and indications of the Federal Reserve scaling back its economy stimulus, investors are now pulling the brakes. This means less competition and more of a level playing field for first-time buyers.

Foreclosures Down

Foreclosure filings in August hit the lowest level in nearly eight years, according to RealtyTrac. Increasing home prices and fewer underwater borrowers have helped in the decline, according to CNN.

Initial foreclosure filings last month dropped a whopping 44 percent to 55,575. “This is a strong indicator that the crisis is over,” Daren Blomquist, vice president at RealtyTrac told CNN. “The foreclosure floodwaters have receded in most parts of the country, although lenders and communities continue to clean up the damage left behind.”