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More banks tighten home loan rules

Associated Press / May 5, 2009
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WASHINGTON - More banks have made it more difficult for people to obtain home mortgages over the past three months, even as demand has grown, the Federal Reserve reported yesterday.

The Fed's quarterly survey found that about 50 percent of US banks tightened lending standards on prime mortgages, up from about 45 percent in a survey issued in early February.

Meanwhile, 65 percent of banks said they had tightened standards on nontraditional mortgages, such as adjustable-rate loans with multiple payment options. That was up from 50 percent in the last survey.

"Even if you had a stellar credit history, banks were reluctant to lend in this environment," said Richard Yamarone, economist at Argus Research. Rising unemployment increases the odds of people defaulting on mortgages, he said.

Demand for nearly all types of consumer and business loans continued to weaken over the past three months, with one exception: Demand for prime mortgages registered its first increase since the Fed began to track those loans separately in April 2007.

Rates on 30-year mortgages slid to 4.78 percent last week.