If you need assistance, please call 707-486-5400

Are Lending Standards Too Loose or Too Tight?

Thursday, June 14, 2018   /   by Nicole Solari

Are Lending Standards Too Loose or Too Tight?


Are Lending Standards Too Loose…or Too Tight?

With home values appreciating at record rates, some are concerned that we may be heading for another housing bubble like the one we experienced a decade ago. One of the major culprits of that housing boom and bust was the loosening of standards for mortgage credit.


In a study done at the University of North Carolina immediately after the crisis, it was revealed that:



“Lenders began originating large numbers of high risk mortgages from around 2004 to 2007, and loans from those vintage years exhibited higher default rates than loans made either before or after.”


A study by John V Duca, John Muellbauer, and Anthony Murphy concluded that those risky mortgages caused the housing crisis:



“Our findings indicate that swings in credit standards played a major, if not the major, role in driving the recent boom and bust in US house prices.”


How do today’s mortgage standards compare to those from 2004 to 2007?


The Mortgage Bankers’ Association tracts mortgage standards in their Mortgage Credit Availability Index(MCAI). A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit. While the chart below shows the index going back to that period between 2004 and 2007 when loose standards caused the housing bubble, we can see that, though the index has risen slightly over the last several years, we are nowhere near the standards that precipitated the housing crisis.


Are Lending Standards Too Loose…or Too Tight? | Keeping Current Matters


Bottom Line


If anything, standards today are too tight and are preventing some qualified buyers from getting the mortgage credit they deserve.


  real estate, home ownership, homebuyers, real estate agent, homes for sale, buying, realtor, selling, finances, first time home buyer, moving, upgrades

The Solari Group
Nicole Solari
4820 Business Center Drive, Ste 140
Fairfield, CA 94534
707-486-5400
DRE# 02014153

IDX Content is provided via the Internet for consumers’ personal, non-commercial use. Variable Price’ indicates the seller is willing to entertain offers within a Listing Price Range. All measurements and all calculations of area are approximate. Information provided by Seller/Other sources, not verified by Broker. All interested persons should independently verify accuracy of information. Provided properties may or may not be listed by the office/agent presenting the information. IDX provided by Commissions Inc. Data last updated:August 9, 2020
This site powered by CINC: www.cincpro.com