Based on recent economic factors, government agencies have begun releasing more mortgage credit available for home buyers. According to the data, loan programs from the FHA and other sources have been increasing. Borrowers have been able to finance home loans with increased debt loads, lower down payments and weaker credit scores.
Finding the Right Balance
Some mortgage experts might argue that loosening lending guidelines can lead to bad loans. Ultimately, mortgage credit being handed out too easily is what led to the housing crash in 2008 that we are still recovering from. We definitely have to be careful not to go down that same path again. Yet, after the crisis, an overcorrection happened and lending requirements became extra strict, making it much harder for borrowers in the middle of the pack financially to qualify for home loans.
The truth is that today’s loans are still much more stringent than they were 10-15 years ago. Borrowers have to prove their value before they can qualify for loans. Big mortgages are no longer just handed out to anyone with a pulse, and ultimately that’s a good thing. Right now, it’s all about seeking that happy balance. Not everyone should qualify for a mortgage loan. However, you can’t make it impossible for the average person to buy a home. It’s a tricky tightrope being walked by lenders and the government agencies setting the regulations.
Still Heavy Regulations
Today, most loans are fixed-rate mortgages. Adjustable-rate mortgages can happen under the right circumstances, but they are rarer and the terms are generally quite different than they were before 2008. Then, you have other “creative” loan features that are mostly things of the past. We’re talking about features like interest-only loans, balloon payments and 40-year amortizing mortgages.
Though the government agencies have been loosening the belt on lending restrictions, the indicators show that mortgage credit is still quite tightly regulated. The Mortgage Bankers Association (MBA) has shown slow and steady increases in its credit availability index since 2012. That year, this index was at 100, which represented one of the tightest times in mortgage credit. As of now, that index sits at 180. That is certainly showing signs of lessening regulations. However, when you compare to the index of 870 that was reached just before the housing crash, you can see we’re still a very long way from the dangerous lending habits that led to that bubble bursting so emphatically.
Default Risk on Loans
Another factor being looked at is what is called “default risk.” This effectively measures whether or not borrowers will be able to make required payments and meet their loan obligations. Through the second quarter of 2018, the overall market default risk was at 5.7 percent. By comparison, this is less than half of the risk being taken during the years of 2001-2003.
I won’t go over every little piece of data, but can check out some other facts and figures in this recent article from scotsmanguide.com
The ultimate point is that we are slowly working our way toward finding the ideal balance in mortgage lending. Government restrictions have loosened to allow more borrowers to qualify for home loans. Yet, the regulations are still stringent enough that lenders aren’t able to hand out mortgage loans like Halloween candy. As you know, the economy is ever-evolving. As a mortgage lender, I am always fascinated by these natural ebbs and flows of the housing industry. Staying on top of these trends helps me and the Transparent Mortgage team to better inform our clients and help them make smarter lending decisions.
If you have mortgage questions, call Transparent Mortgage today at (619) 929-0199.