Banks and other lenders are beginning to ease their scrutiny of loan applicants, in what the Wall Street Journal calls a "sign of their rising confidence in the housing market." The source cited several examples, including TD Bank's "Right Step" initiative, which allows first-time buyers and those with low to moderate incomes to purchase a home with a down payment of as little as 5 percent.
According to a study cited by the Journal, a greater share of the mortgages being originated by banks today have down payments of less than 10 percent than at any other time in the last five years. This trend is reportedly being driven by the increased availability of private mortgage insurance. Down payment requirements for jumbo loans have also fallen, although they remain higher than the standard for conforming loans, with more banks accepting down payments in the 10 to 15 percent range.
A report from Goldman Sachs suggests that new home sales could reach 800,000 by 2017 if lenders continue to ease credit standards for loan applicants. That would be almost double the 430,000 sales recorded last year. Analysts at the Urban Institute have estimated that if credit standards had been loosened to 2001 levels, as many as 200,000 more mortgages would have been originated in 2012.
The Journal explains that credit standards are being loosened largely as a result of banks' need to attract new customers as refinancing activity continues to decline. However, even with the economy improving, lenders still need to be attentive to risk.
Some borrowers, such as those who are self-employed, can have trouble providing lenders with adequate documentation of their income. In these instances, it can be beneficial to have alternative data sources to draw on during a credit risk assessment.