November 17th, 2011 6:57 AM by Lehel S.
Sales contracts are falling through at twice the rate of last year, according to new figures released by the National Association of Realtors at its annual convention in Anaheim.
NAR said 18% of its members reported "contract failures" in recent months, which is double the level of a year ago. The two main reasons: Would-be buyers' applications for credit are being declined, and appraisals are coming in at below the agreed-upon price.
Even buyers with good credit are challenged by tight lending restrictions, said Chandra Hall, a Colorado Springs Realtor who led a session on how to crack the credit code.
NAR's analysis found that the average score for buyers using conventional financing rose from 717 in 2007, to 760 in 2010. Weighted average FICO scores for conventional loans purchased by Fannie Mae and Freddie Mac eased a bit in this year's second quarter, declining to 755, but remain well above historic norms, the realty group said.
Almost three out of every four loans were offered to buyers with scores of 740 or higher, while less than 1% were offered to those whose scores were 620 or lower, NAR said. Twenty-five percent of Americans have credit scores below 599 -- almost double the level of two years ago.
The stiffer mortgage requirements have come at a time when banks are seeing strong profits and run counter to the government's efforts to use rock-bottom interest rates to get the economy and the housing market moving again, said NAR's chief economic, Lawrence Yun.
"We need to get back to reasonable lending standards," said Ron Phipps, the outgoing president of the 1.1 million member trade group.
The convention featured two separate educational sessions on the importance of credit scores and how to improve them, the one by Hall and another by JoAnn Sworan of Real Estate CSO, a Lemont, Ill., a credit repair company established to educate consumers, Realtors, and lenders.
During her session, Sworan said would-be buyers should be advised to check and begin monitoring their credit reports at least six months before they ever meet with a loan officer. The difference between a 720 score and 620 could be 140 basis points, resulting in raising the payment on a $300,000 mortgage $253 a month, from $1,436 to $1,689.
"It's imperative to know how credit scoring works and how to achieve the highest possible score," Sworman told the conference.