Lenders Fear Another Real Estate Bubble is Inflating

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NEW YORK (MainStreet) — We haven't fully recovered from the last agonizing housing crash, yet mortgage bankers already fear a recurrence. More than half (56%) of North American lenders surveyed for FICO expressed concern that "an unsustainable real estate bubble is inflating."

"The home loan environment has bifurcated," says Dr. Andrew Jennings, chief analytics officer at FICO. "Six million homeowners in the U.S. are still underwater on their mortgages, with the average negative equity a whopping 33%. Yet with home prices soaring in many cities, total homeowner equity in the U.S. is at its highest level since late 2007. That doesn't feel like a healthy, sustainable growth situation. No wonder many lenders in both Canada and the U.S. are concerned about the risk in residential mortgages."

Consumers are finding it increasingly difficult to qualify for a mortgage as lenders tighten their underwriting standards. Of the mortgage bankers surveyed, most (59%) said a "high debt-to-income ratio" is their top concern when approving loans. Additional stumbling blocks for borrowers include multiple recent applications for credit (13%) and a low credit score (10%).

"As consumer confidence picks up and people increase their borrowing, lenders are understandably concerned about growing indebtedness," said Mike Gordon, executive vice president of sales, services and marketing at FICO. "For the last two quarters, around 65% of our respondents said they think credit card balances are headed higher. Those are the two highest figures we've ever seen in this survey. When I talk with bankers, they tell me they're happy to see growing consumer optimism, but they're wary of a return to reckless borrowing."