Banks warming up to mortgages again after housing crisis

If you want to buy a home and go to a bank for a mortgage, you may get a warmer welcome than people have received in years.

The mortgage lending market is thawing. Banks are providing more mortgages after essentially closing up shop when the housing crash and financial crisis devastated mortgage brokers and many lenders in 2008, according to new research by the Urban Institute Housing Finance Policy Center.

During the first half of this year, banks originated and held on to 34 percent of the mortgages people obtained to buy homes, said researcher Karan Kaul. That contrasts with just 15 percent in 2008, a period when government-related lending was essentially the only game in town after deeply injured banks went into hibernation.

“Before we get too excited, remember that most of the mortgages are going to the best of the best, of the best of the best borrowers,” said Kaul. Borrowers approved for mortgages recently had an average FICO score of 746, the report said. Those who received Federal Housing Administration loans averaged 680. Before the crash in housing, low 600 scores were welcomed.

Banks still don’t want to take on risks, and so they concentrate on people with the highest credit scores – people who are very unlikely to fail to make their payments, Kaul noted. The highest possible FICO credit score is 850.

Still, despite tough lending standards continually making it hard for many people to get loans, the fact that banks are lending more is a good sign, Kaul said. Lending could trickle down somewhat to people with slightly lower scores, and it takes some of the burden off government-related entities.

Before the housing crash, banks and other private lenders provided about half of the mortgages. After the crash, government entities were taking on nine of 10 loans, according to Urban Institute. More recently, seven of 10 mortgages were government related.

“We have made great progress in bringing back private capital,” noted the report. But more needs to be done to further reduce the government’s role, it said.