From what I know about conducting residential and commercial closings over the past sixteen plus years, I can tell you that since the “recession”, there were many new regulations enacted to eradicate predatory lending and marginal loans (to try to avoid the foreclosure “title” wave). In doing so, however, regulators created a much stricter lending environment.
For one thing, Fannie Mae and Freddie Mack, in addition to other loan guarantors, now back almost all mortgages. Hence, more regulations. Quite simply, the lack of clarity on the additional regulations is now preventing many lenders from offering loans to borrowers with the lowest credit scores.
The result? Industry data reflects that, in 2002, someone with a 620-639 had about a 20% chance of getting approved–now, it’s about 2%. With a 640-699 score, the 2002 odds were 40% the consumer would get the loan. In 2014, the odds were half of that (20%). If a consumer had a 700-799 score in 2002, she was almost guaranteed to get the loan (90%). Her odds in 2014 were down to 44%. With 780+, you were guaranteed to get your money, in 2002 (100%)–not so much in 2014, though –30%. I’m not entirely sure why the industry’s numbers show a lower chance of success now if the consumer has a perfect score, than if they have a lesser score. I suspect it’s because the amount they are trying to borrow is too high, thanks to the housing market, compared to their income (which is not keeping pace). Another issue associated with the uncertainty of the current regulations is that borrowers with a credit history that suffers from one-time events (ie: job loss or medical bills) are now passed by.
Another issue is that, with the increase in regulations, it now takes two months or longer from when a consumer makes an application to when the loan is made. Before the recession, it was about half the time. This is because every stop along the way — application, verification, appraisal, etc — is subject to more regulation.