Lending Standards Are Not Like They Were Leading Up to the Crash You might be worried we & rsquo; re heading for a real estate crash, but there are numerous factors why this real estate market isn & rsquo; t like the one we sawin 2008. Among which is how loaning requirements are different today. Here & rsquo; s a look at the data to help show it. Every month, the Mortgage Bankers Association(MBA)releases the Mortgage Credit Availability Index(MCAI). According to their website: & ldquo; The MCAI supplies the only standardized quantitative index that is entirely concentrated on mortgage credit. The MCAI is ... a summary step which shows the availability of mortgage credit at a point in time. & rdquo; Basically, the index identifies how easy it is to get
a home loan. Take an appearance at the graph below of the MCAI since they began tracking this data in 2004. It demonstrates how financing“requirements have actually altered in time. It works like this: When providing requirements are less rigorous, it & rsquo; s easier to get a home mortgage, and the index (the green line in the chart)is higher. When lending standards are more stringent, it& rsquo; s harder to get a mortgage, and the line representing the index is lower. In 2004, the index was around 400. However, by 2006, it had actually increased to over 850. Today, the story is rather different. Considering that the crash, the index went down because lending standards got tighter, so today it’& rsquo; s more difficult to get a mortgage.
Loose Lending Standards Contributed to the Housing Bubble
One of the primary aspects that contributed to the real estate bubble was that financing requirements were a lot less stringent back then. Realtor.com discusses it like this:“& ldquo; In the early 2000s, it wasn’& rsquo; t precisely tough to snag a house mortgage... a lot of home loans were administered to individuals who lied about their incomes and work, and couldn’& rsquo; t in fact pay for homeownership.”& rdquo; The tall peak in the graph above shows that leading up to the real estate crisis, it was much simpler to get credit, and the requirements for getting a loan were far from strict. At that time, credit was widely readily available, and the threshold for qualifying for a loan was low.
Lenders were authorizing loans without always going through a confirmation process to verify if the debtor would likely be able to pay back the loan. That suggests lenders were providing to more customers who had a greater threat of defaulting on their loans.
Today’& rsquo; s Loans Are Much Tougher To Get than Before
As pointed out, lending standards have changed a lot ever since. Bankrate describes the distinction:“& ldquo; Today, lending institutions enforce hard standards on borrowers –-- and those who are getting a home loan overwhelmingly have outstanding credit.”& rdquo; If you recall at the graph, you’& rsquo; ll notification after the peak around the time of the housing crash, the line representing the index went down drastically and has remained low given that. The line is far listed below where standards were even in 2004 –-- and it’& rsquo; s getting lower. Joel Kan, VP and Deputy Chief Economist at MBA, supplies the most current update from May:
“& ldquo; Mortgage credit schedule decreased for the third consecutive month ... With the decrease in accessibility, the MCAI is now at its lowest level because January 2013.”& rdquo; The decreasing index suggests standards are getting much tougher –-- that makes it clear we’& rsquo; re far from the severe financing practices that contributed to the crash.
