Straight From The Fed : Changes In Lending Methods

The housing crisis has caused considerable economic damage to the US. However, the underlying reason that this natural shift in the market has caused such carnage is due to lending practices of many lenders in the market place.

The heavy reliance on credit scores, rather than financial ability, coupled with the large number of ARM loans offered to consumers with low credit and low incomes has been the driving force behind the crisis.

The federal government has, belatedly, realized the cause of this concern and has taken steps to rectify the situation. One of those steps is underwriting loans for low income families through corporations such as Freddie Mac and Fannie Mae. While this process has only just been rolled out, it provides a feeling of coming stability for certain market sectors.

Another aspect of changed instituted by the federal government is a mandate for lenders to stop looking at credit scores as the only way to qualify for a home loan.

What does this mean for consumers?

It is actually a good thing, though many may feel differently. For instance, it means that if you have good credit, yet lack the income to make the appropriate payments, you will be less likely to get a home loan. While this may sound disheartening, it is actually a method developed to help reduce the staggering amount of consumer debt in the US.

Rather than credit score, lenders will be looking at monthly income and payouts. If you have a good income, yet have a low credit score, this means that you are much more likely to be able to find a home loan that will work for you. This is actually not a new practice and was the rule of the industry in the past, before the credit score craze of the past few decades.