Need a Mortgage? Try the Big Banks First

When you apply for a mortgage, should you apply at a small bank or one of the big names? According to a new report released by the Fed, big banks are the better bet.

With mortgage rates as low as they have ever been, many people are rushing into getting a mortgage and achieving their dream of owning a home. Unfortunately, that dream is becoming harder and harder with all of the regulations and guidelines that a borrower must meet before getting a loan. Now, many small banks across the country have made it tougher for borrowers to get a loan from them as they have tightened their standards for mortgage loans.

Earlier this year, small banks – or those that make less than $50 million each year – loosened their lending standards to help more buyers take advantage of the historically low mortgage rates. But here we are several months later and those banks have had to broaden their restrictions. This finding was reported this week after the Federal Reserve interviewed more than 75 of these small banks nationwide.

According to the report, less than half of the small banks that participated in the Fed’s survey reported making sub-prime loans to borrowers over the last three months. The more banks that follow this trend, the harder it is going to be for the economy to bounce back to what it was just a few years ago. However, the smaller banks are saying that the problem doesn’t necessarily lie with them. They cite the fact that there are fewer people looking for home loans these days with the uncertain job market and a resurgence of interest in paying off debts and spending money more responsibly. These banks are saying they are more than willing to loan money to mortgage borrowers but there simply are not as many of them as there used to be. And it’s not just mortgage loans that have suffered. Business loans, credit lines and more have suffered as a result.

Paul Ashworth, a senior U.S. economist with Capital Economics, says the drop in demand is “disturbing.” And with the government announcing another stimulus last week in the amount of $600 billion or more, Ashworth thinks it could be even worse. He says these “claims that quantitative easing will lead to a new boom in bank lending look well wide of the mark.” However, on the other hand, nearly every bank in the survey conducted by the federal government said that they have relaxed their guidelines and restrictions on industrial and commercial loans in the last few months. Many banks have evened loosened their standards for credit cards in order to compete with other banks in the country. Unfortunately, the small banks do not see any change in their mortgage lending practices in the near future.

What this means for you is that you probably have a better chance of getting a mortgage loan if you go through a larger bank, such as Bank of America, Chase, Wells Fargo or one of the other big names. Take advantage of these low mortgage rates while you can!

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