Banks Loosening Mortgage Lending Standards

NEW YORK (TheStreet) -- The decline in mortgage activity in the United States continued in January and big banks, including Wells Fargo (WFC) and JPMorgan Chase (JPM) are responding by lowering their underwriting standards.

The Mortgage Bankers Association projects that originations of one-to-four family mortgage loans in the U.S. will decline to $1.116 trillion in 2014 from an estimated $1.755 trillion during 2013, with the wave of refinancing slowing as long-term interest rates have risen.

According to a preliminary estimate from Inside Mortgage Finance, the issuance of single-family mortgage-backed securities by Fannie Mae (FNMA), Freddie Mac (FMCC) and Ginnie Mae totaled $67.8 billion during January. That's down 10% from December and is also the lowest figure since January 2009.

Major lenders are making adjustments. Wells Fargo has lowered the minimum FICO score for borrowers applying for loans insured by the Federal Housing Administration to 600 from 640. JPMorgan Chase "plans to lower LTV standards in certain markets for both jumbos and conforming mortgages to portfolio on balance sheet," Deutcshe Bank analyst Dave Rochester wrote in a note to clients on Tuesday.

LTV stands for loan-to-value ratio. "Conforming" means a one-to-four family mortgage loan that adheres to the underwriting standards of Fannie Mae and or Freddie Mac, and can therefore be quickly sold to one of those government-sponsored enterprises. It is very important for lenders to have the option of selling the majority of their newly originated fixed-rate mortgage loans, in order to get the interest-rate risk off the books and free-up liquidity to make more loans.

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