Upcoming changes in mortgage lending threaten to eliminate all mortgages for bad credit. (Unnamed Copywriting)

Upcoming changes in mortgage lending threaten to eliminate all mortgages for bad credit.

Mortgages for people with bad credit have been around for a long time. They have become a solid tool for not only helping someone with bad credit become a homeowner, but also for helping to increase someone’s actual credit score.

Home mortgages for bad credit, however, have come under serious scrutiny in the last few years, due mainly to the mortgage crisis. There is no denying that a mortgage loan for bad credit did play a part in the meltdown of the mortgage world. But, that is not to say that they did not, and still do not have there place.

The problem was not that every single mortgage for bad credit was a bad loan, or that ever mortgage lender for bad credit was an irresponsible lender. There were only some that fell into this category. So many lenders and homeowners were lulled into bad financing because they couldn’t see the long term picture and simply wanted to get financing, or give as much financing as they could at the time.

But, there were still homeowners that had fallen on bad times and were trying to put themselves into better positions. There were also plenty of lenders that were lending responsibly. But, the actions of a few now stand to eliminate the chances of everyone with bad credit to obtain any mortgage financing.

We have already seen this change start. The FHA program has been in existence since 1933 and has always been a tool for first time homeowners and people with bad credit to obtain financing. The rates have always been good rates, and for the most part, these were fixed rate loans. This was never a program that was based on your credit score, but was actually based on a borrower’s last twelve month worth of payment history. These were great ways to responsibly offer mortgages for people with bad credit history. But, in the last year, we have seen the program go from no credit requirements to a 500 minimum credit score to a 560 minimum, all the way up, in some instances, to a 620 score.

Problems with people taking advantage of the leniency of the program to get loans with doctored income documents, using the loans to finance buy to let mortgages, and getting short term adjustable rates have caused one of the most secure lending institutions in America to have to start turning away borrowers.

As the credit score requirements tighten, the effects become larger and larger. As fewer people are able to get approved for mortgage financing, there are fewer and fewer buyers available to purchase new homes. When current homeowners can not afford their current mortgage payments and decide they need to sell and downgrade, it has become increasingly more difficult for them to sell, as there are so fewer available qualified buyers.

If the guidelines for approval continue to tighten, we will see a world where only the perfect borrower is able to get approved for mortgage financing. Should this become the case, there will be no more loans anywhere for borrowers with bad credit.