Interest rates have risen nine consecutive weeks, but home loans are still, well, easy money.

Lenders have effectively rejected federal pressure earlier this year to tighten lending belts with stiffer underwriting measures designed to reduce the level of risky loans that have crowded lenders' portfolios.

For home buyers and refinancing home owners that should help take some of the bite out of mortgage interest rates that are now as high as they've been since September 2003.

Rather than tighten requirements for home loan approvals, almost 40 percent of domestic banks reported that over the past two years they had increased the maximum size of primary mortgages they were willing to provide, while about 30 percent indicated that over the same period they had increased the maximum size of second mortgages, according to the Federal Reserve Board's "October 2005 Senior Loan Officer Opinion Survey on Bank Lending Practices", a survey of loan officers from 57 domestic banks and 19 foreign banking institutions.

What's more, about one-fourth of those surveyed said that they had narrowed spreads of mortgage rates over an appropriate market base rate (which means there are more loans with attractively competitive rates available) and that they had increased the maximum loan-to-value ratio on such loans (which means borrowers are allowed to carry even greater debt loads).

Earlier this year, on May 16, coinciding with a heightened level of warnings about escalating home prices, industry fraud, the potential for higher interest rates and other concerns factoring into the potential for a housing bubble that goes bust, the Federal Reserve, along with the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision and the National Credit Union Administration issued "Credit Risk Management Guidance For Home Equity Lending".

The advisory statement said the quality of lenders' home equity portfolios was of concern, especially if "interest rates rise and home values decline. Sound underwriting practices and effective risk management systems are essential to mitigate this risk."

Since the advisory, the average fixed interest rate for conforming 30-year home loans did indeed rise from 5.71 percent to 6.36 percent on Nov. 10, according to Freddie Mac.

Along with vulnerability to interest rate increases, federal agencies identified the following practices as risk factors warranting scrutiny:

• Interest-only loans with no principal amortization for a protracted period.

• Higher loan-to-value (LTV) and debt-to-income ratios.

• Permitting lower credit scores for loan approval.

• Greater use of automated property valuation for appraisals.

• An increased number of transactions generated through a loan broker or other third party.

• Limited or no documentation of a borrower's assets, employment and income.

Most of those approaches to making home equity loans and first mortgages have gained widespread appeal in recent years to overcome the high cost of housing. The terms greatly improve the chances of those who may not qualify to buy a home under stricter guidelines, but who can actually afford to buy a home.

After the advisory, the Fed's "July 2005 Senior Loan Officer Opinion Survey on Bank Lending Practices" indeed revealed more than half the banks in that survey said the riskier-loan share of mortgage originations had increased over the past year and three large banks -- accounting for almost 40 percent of the surveyed banks' residential mortgage holdings -- indicated that their share of originations on riskier mortgages exceeded 75 percent in the past year.

There was some concern that if lenders followed federal advise and tightened the flow of mortgage money some consumers would be left out in the cold and others would have to make sure they maintained their income, credit, debt and other qualifying financials on par with the levels that qualified them for the loans.

Under stricter guidelines, lenders more often could have called loans due, cut off unused credit or taken steps to reduce risk caused by marginal loans. Loans typically come with provisions that allow lenders to take action under certain circumstances and consumers should read the small print to determine what those circumstances are.

Mortgage interest rates are as high as they've been in more than two years, but luckily for home buyers and those who wish to refinance, lenders, so far, have stuck to the underwriting status quo.

"In response to the supervisory letter, most domestic institutions indicated that they had not changed their lending standards or terms on home equity lines of credit. Only five banks reported having tightened price-related terms and only a few banks reported having tightened their non-price-related terms and credit standards on such facilities," according to the Fed's October 2005 Loan Officer Survey.

The survey says, over the past two years, mortgage lenders also have stuck with the same length of extended interest-rate locks (giving borrowers more time to close with the best rate), minimum required credit scores and the same level of loan origination fees among other favorable underwriting levels.

Home loans do cost more, but they remain just as easy to obtain -- if not more so -- as they have been for the past several years.

Published: November 11, 2005

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.