Lenders Establish Tighter Lending Standards

[Jun 4, 2008.]

 

Mortgage lenders, in response to the credit crunch, are establishing stricter standards for loans, thus making it harder for those with the worst credit to obtain the loans they need to pay for their debts.

Despite the tightened standards, a vast number of credit-impaired individuals looking to borrow can find lenders willing to do business with them. The problem is, however, that their business comes at higher rates than were being quoted in recent times.

Jim Sahnger, a qualified mortgage consultant in Stuart, Fla., believes that the vast majority of people don't need to worry about the changes and that they can find the loans they need.

Regardless, at least a few people have good reasons to worry, such as homeowners with bad credit who want to refinance their property and people with less than average credit who are finding it harder to qualify for loans.

The strict lending standards are the result of the subprime mortgage crisis that has rocked the US in 2007 and continues to affect people in 2008, which has resulted in a credit crunch for those people in the subprime category who have applied for and received loans with credit scores less than a value of 620. A notable number of subprime lending businesses have filed for bankruptcy in the past several months on account of the fact that they've approved too many loans for a number of borrowers who ended up missing several of their payments, an issue that is known as early payment defaults.

In fact, at least more than 20 subprime lenders have gone belly up since las December, and other lenders, having beared witness to the tragic demise of their brethren companies, are trying desperately to avoid the same fate by increasing the difficulty for borrowers with bad credit to apply for and receive loans.

The harsher standards are composed of requirements for better credit scores, lower loan amounts, and larger down payments.