Mortgage Credit -- Is It Easier or Harder to Get?

For the past several years there have been concerns that credit is somehow too tight for mortgage borrowers. Surely everyone would like easier credit because that would mean more loan application successes as well as bigger loans. But factually, credit access has been pretty much stable for the past seven years. It's been up a little here and down a little there, but in total there really hasn't been much of a change. Data from the Mortgage Bankers Association plainly shows that all has been quiet on the credit front since 2008.

"Mortgage credit availability increased on net in April," explained Mike Fratantoni, MBA's Chief Economist. "The increase was driven by new offerings of FHA's 203K home improvement program, new VA offerings, and new jumbo products. The increase was partially offset by some investors tightening underwriting criteria on conventional cash out offerings."

But if the evidence plainly shows that credit access has been more or less steady since the mortgage meltdown then why is there the sense that mortgages are tougher to get?

One reason is that mortgages ARE tougher to get when compared with 2006 and thereabouts. No doubt about it, credit standards back then were easier. It was the era of the no doc loan but that wasn't all: There were also NINA loan applications (no Income no asset) and SISA loan applications (stated income, stated assets).

With such loan application borrowers might not have to say anything about their income or assets (NINA) or maybe just guess -- with a "stated" income or asset application the borrower is allowed to estimate their income or assets (SISA).

Why would lenders accept such loans? Well, in fairness, many lenders didn't, especially small banks, community banks and credit unions. But some -- obviously -- did and the result was the largest financial collapse since the Great Depression.

Those who did allow such loans argued that credit scores could be used in place of extensive documentation. This sounds good in theory but experience has shown that the theory is just plain wrong. There's no reason why a borrower should not by able to document income and no reason why a lender should not insist on an appraisal to verify the value of a property.

Having loose underwriting standards meant a lot of loans could be approved and more loans equaled more fees and profits. However, such easy financing was not cost-free. More than seven million people were foreclosed and home values as of February have not reached the peak prices seen in 2007.

So, yes, once-upon-a-time a mortgage was a lot easier to get, but the truth is that weak or virtually nonexistent underwriting standards greatly harmed the housing sector and with it the entire economy.

Today it's more difficult to get a mortgage when compared with 2006 but what we have really done is gone back to proven underwriting standards, the standards which for decades allowed lenders to make good loans and borrowers to keep good houses. Even though we have more paperwork than a few years ago, the benefit is surely worth it.

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