Current U.S. credit home loans are heavily influenced by Federal Reserve rate hikes, with conforming loan standards tightening. Lenders now require a minimum credit score of 620, up from 580 in 2020, and debt-to-income ratios capped at 43%. Refinance activity dropped 18% YOY in Q2 2023 (MBA), reflecting higher borrowing costs.

The tightening standards align with post-pandemic risk mitigation strategies. Fannie Mae’s 2023 Selling Guide mandates a 12-month seasoning period for refinances, excluding government-backed loans, to assess borrower stability. This policy, coupled with rising 30-year fixed rates (7.25% in July 2023, Freddie Mac), has reduced loan approvals for riskier profiles. Data from the Consumer Financial Protection Bureau shows 62% of approved loans in Q1 2023 had credit scores above 720, up from 55% in 2020. Stricter underwriting has also lowered default rates to 0.25% in Q2 2023 (FHFA), down from 0.38% in 2021. Economic resilience, particularly in employment (3.6% unemployment rate in June 2023), supports lenders’ confidence in sustainable lending. However, the Federal Reserve’s ongoing tightening cycle may further constrain affordability, potentially reducing home purchase demand by 5-7% by late 2024 (Mishkin & Plosser, 2023). These factors collectively highlight the interplay between monetary policy, credit accessibility, and market stability in shaping U.S. mortgage dynamics.