Finally, some news indicating that potential home buyers may soon have slightly fewer obstacles to overcome to get into a new home. A recent article in the Wall Street Journal gives examples of several mortgage insurers, MGIC Insurance Corp and Genworth Financial, both of which have made the decision to loosen restrictions for down payments in specific areas of the United States. The decision is in part due to the perception that the real estate market is showing signs of recovery in particular areas, and these markets are eligible for the lower down payment(s) with an increasing number of lenders.

But in addition to the local real estate market, the article cites concerns with regaining market share from the Federal Housing Admininstration (FHA) as one of the catalysts behind the moves by private mortgage insurers. The Federal Housing Administration ( FHA) has programs available which require as little as 3.5% down payment, therefore borrowers who cannot afford a 20% down payment are utilizing the FHA programs. According to figures from the trade publication Inside Mortgage Finance, private mortgage insurers have seen an approximate 60% drop in new insurance business in the first three quarters of 2009, over the identical period the previous year. It appears that to remain competitive these private lenders are beginning to realize they must act agressively in their business plan as well, while maintaining high standards for qualification.

Although down payment requirements may well be loosening for some, the requirement for a good credit score, as well as full documentation supporting the purchaser’s ability to qualify for the loan, remains tight. The news that some lenders will be relaxing down payment requirements is a sign of recovery, an indication that lenders are beginning to make purchasing homes easier in an attempt to help the bullet-riddled real estate market recover.

 According to Genworth Financial, the states of  Arizona, California, Florida, Michigan and Nevada are the final five states which are still classified as distressed or declining markets. MGIC Insurance Corporation freed up restrictions initially last September in eleven market areas, and recently added seven others to the list including New Orleans, Dover, Delaware and five areas in Ohio.

Even Wells Fargo is getting into the game and recently met to discuss reduction of market-based lending standards.  According to the WSJ article, “Even in some of the country’s most troubled markets, “we are starting to see…moderation” said Neil Librock, head of credit risk for the bank’s home and consumer-finance group. Wells Fargo’s changes could benefit borrowers the bank has been requiring to make down payments of more than 20%, he said.

The recent actions by a handful of lenders is at least a step in the right direction, and provides some indication that perhaps the industry is beginning to recognize that many areas of the country are past the worst of the housing decline. Many industry experts are predicting stabilization of home prices over the upcoming year, and with this we can hopefuly expect to see more financial institutions easing requirements for mortgages.

Readers, how do you feel about your ability to qualify for a mortgage under the current conditions? Will a reduction in down payment requirements make a difference? Let us know by leaving a comment!

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