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New rule will shine light on stringent lending standards

A new rule will require financial institutions to disclose how credit scores impact mortgage lending.

A new rule will require financial institutions to disclose how credit scores impact mortgage lending.

Low mortgage rates and affordable house prices would logically make moving vans a common site around the country, yet home sales remain sluggish. New rules about to go into effect might show the extent to which stricter lending standards are making it difficult for people to relocate.

Under provisions of last year's financial services legislation, mortgage lenders will soon be required to disclose the consumer credit scores they use in determining whether applications are approved and what interest rates are offered.

On July 10, the Wall Street Journal offered a preview of what is likely to be revealed by these disclosures. The Journal cited RBS Global Banking and Markets data showing lenders are holding mortgage applicants to higher credit standards than they were a few years ago. While 82 percent of 2003-2006 Fannie Mae mortgages were made to borrowers with credit scores between 700 and 750, a full three-quarters of 2011 mortgages have gone to homebuyers with scores between 750 and 775.

The Journal quoted Norman Calvo, president of a New York mortgage company, who said rates associated with credit scores of 700 to 725 are about 0.25 percent higher now than in the pre-recession economy.

This week, Freddie Mac reported mortgage rates edged up during the first week of July.