Also, bad loans of all shapes and sizes are still working their way through foreclosures and court proceedings. Just this week, prosecutors in New Jersey filed charges against one of television's "Real Housewives of New Jersey," Teresa Giudice, and her husband Giuseppe "Joe" Giudice, who were charged with falsifying income data on $2 million in home mortgages dating back to the early 2000s when standards were loose.
Financial regulators are also pushing for controls to avoid the excesses that led to the crash. The new Consumer Financial Protection Bureau has been pushing for a limit on borrowing when a debt-to-income ratio exceeds 43 percent, although Congressional opponents worry it will "reduce access to credit that qualified borrowers need to buy homes," according to a press release issued by members of a House Financial Services subcommittee.
Lending experts say consumers need to be well-prepared to deal with the stringent process when they seek loans. Documentation is important, sometimes in the form of a letter from an employer. People seeking mortgages should also be prepared to shop for deals. Different lenders have much different standards. Down payments are rising for many loans, with 20 percent to 30 percent equity required from private lenders. For those who qualify for FHA loans, the down payment is 3.5 percent, but requirements for the federal lending program are stringent. Two years in a job and a credit score of 620 or better are needed, and costly mortgage insurance adds more than a percentage point to the lifetime cost of the loan. For wealthy buyers, FHA loans don't help much since they are capped at $625,000.
The high-end lending market is slowly recovering, though, and private lenders are extending credit for the well-heeled while avoiding the starter-home set that can borrow through government programs. "It's more work but things are getting done," says Love, whose clients are mostly those with enough money to afford a second home. "We are very busy this summer, and we haven't even gotten to the peak period [at summer's end when people often buy vacation homes.]"
Biltmore's Vernon says his firm has been busy getting loans for wealthy clients who borrow against their investment portfolios. The rate of borrowing in so-called margin accounts has reached near the all-time highs just before the 2008 market crash. That strategy is attractive because such arrangements offer rates as low as 1 percent and sometimes even less, and they require no additional down payment because the banks hold the securities that back up the loans. "It's almost no risk to the banks because the securities are pledged as collateral," Vernon says.
The downside is that if the securities fall in value, the borrower's assets can be liquidated. Vernon says he advises caution and recommends such borrowers keep "back-up emergency funds" like a home equity credit line. The rates can also increase as overnight bank-lending benchmark rates rise.
MBA's Fratantoni worries that a further increase in interest rates could cause problems for borrowers at all income levels. "People's credit has been getting better since the crisis," he says. "But any time you see a rapid increase in rates, anything tied to variable rates has some additional risk." Bankers and consumer advocates find themselves in rare agreement on the issue. Easing loan terms too much could be risky for banks and borrowers.