Why looser lending standards won’t help you

September 13, 2013, 7:48 PM UTC

FORTUNE — After years of tighter lending standards, U.S. lenders are turning on the credit spigot again. This comes as banks try to compete harder for customers, given that the spike in borrowing costs has quickly shrunken the lucrative market for home refinancing.

JPMorgan Chase (JPM), the nation’s largest bank, is relaxing mortgage-lending standards in housing markets hard hit by the crash and where prices are rising rapidly. It lowered down payment requirements in Florida, Nevada, Arizona, and Michigan, Bloomberg reported this week. Other big lenders, including Wells Fargo (WFC) and Bank of America (BAC), are also easing the tightest credit conditions in two decades.

What’s more, the average FICO score for closed loans fell to 737 in July, the lowest since at least August 2011.

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Ordinarily, these developments help many more homebuyers take out mortgages, but only the richest Americans will likely benefit, says David Stevens, CEO of the Mortgage Bankers Association, which tracks trends in mortgage applications. Banks may be making it a bit easier for borrowers as the housing market recovers, lifting restrictions put in place after the worst housing market bust since the Great Depression, but that won’t necessarily spawn many more mortgages for home purchases.

Credit is loosening for wealthier borrowers who put substantial down payments on their homes. But the average borrower, particularly first-time buyers who generally have less to put down, will continue having a tough time taking out a mortgage.

“We’re not going back to those days of easy credit,” says Stevens, referring to the kind of subprime mortgages and no-money-down loans of the early 2000s.

This doesn’t mean the market for mortgages for home purchases will drop off, as refinancings have amid the recent spike in interest rates. Whereas purchase applications have been growing at 7%, refinancings are down 71% from their peak in May.

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What’s holding purchase applications steady has less to do with anything lenders are doing. Historically, roughly 1 million U.S. households are formed each year, but since 2008 only about 500,000 have formed annually. Because builders built less than the average number of homes in the years following the financial crisis, they’re expected to ramp up building over the next few years to catch up with population growth.

How many of those new households will be rented or purchased is uncertain, but given where the homeownership rate has fallen to a two-decades low, it’s likely that fewer Americans will be buying.