Wednesday, June 15, 2016

Lawler: The More Things Change ...

by Calculated Risk on 6/15/2016 05:11:00 PM

From housing economist Tom Lawler:

Below is an excerpt from a news story about mortgage credit standards. I’ve deleted the names of people quoted in the story, and I’ve left blank two references to the time periods being discussed (A and B). Read this excerpt, and before looking below, and try to guess what year “A” refers to and what period “B” refers to.

If you have not been in a lender's office lately but plan to apply for a mortgage soon, brace yourself for surprises. Gone are the breezy days when some lenders routinely stretched debt-to-income ratios or overlooked past credit problems. Mortgage specialists say getting a home loan in ___A___ can be a lot rougher than it used to be.

"Lenders are very concerned these days about the debt exposure of consumers. Someone out there with a shaky credit history may find it more difficult to get a mortgage than back in _____B_______ when the economy was rolling along," says Michael L. Wilson, deputy director of the U.S. League of Savings Institutions.

"There's definitely a tightening up. Lenders are more aware of the risk involved in making mortgage loans.”

One signal of change is the decline of the "low doc" or "no doc" mortgage, which excused those with large down payments from the need to produce most documentation on their income or debt loads. These days most mortgages are traditional, full documentation loans.

But there's more to the story than the near extinction of low or no doc loans. Even with traditional loans, lenders have become more demanding and nitpicky about paper work, mortgage specialists say. "Lenders are going into that dot the `i' and cross the `t' situation.”

"It's true that the whole lending environment has gotten more conservative. But for the average home buyer, it's not so conservative that they're being frozen out of the market. There are just more hoops to jump through.”


A - 1991

B - the mid-80’s

Mortgage lending standards, for a host of different reasons, loosened considerably later in the 1990’s, and by the end of that decade were considerably easier than the “historic” norm – though they were not as ridiculously easy as was seen during the subsequent six years.