{"id":1592,"date":"2021-04-01T14:08:00","date_gmt":"2021-04-01T14:08:00","guid":{"rendered":"https:\/\/phphouses.com\/blog\/?p=1592"},"modified":"2021-04-01T14:08:00","modified_gmt":"2021-04-01T14:08:00","slug":"theres-no-reason-panic-todays-lending-standards","status":"publish","type":"post","link":"https:\/\/phphouses.com\/blog\/theres-no-reason-panic-todays-lending-standards\/","title":{"rendered":"There\u2019s No Reason To Panic Over Today\u2019s Lending Standards"},"content":{"rendered":"
\"\"

There\u2019s No Reason To Panic Over Today\u2019s Lending Standards<\/p><\/div>\n

Today, some are afraid the real estate market is starting to look a lot like it did in 2006, just prior to the housing crash. One of the factors they\u2019re pointing to is the availability of mortgage money. Recent articles about the availability of low down payment loans and down payment assistance programs are causing fear that we\u2019re returning to the bad habits seen 15 years ago. Let\u2019s alleviate these concerns.<\/p>\n

Several times a year, the\u00a0Mortgage Bankers Association<\/em>\u00a0releases an index titled\u00a0The Mortgage Credit Availability Index<\/a>\u00a0(MCAI). According to their website:<\/p>\n

\u201cThe MCAI provides the only standardized quantitative index that is solely focused on mortgage credit. The MCAI is\u2026a summary measure which indicates the availability of mortgage credit at a point in time.\u201d
\n<\/em><\/p><\/blockquote>\n

Basically, the index determines how easy it is to get a mortgage. The higher the index, the more available mortgage credit becomes. Here\u2019s a graph of the MCAI dating back to 2004, when the data first became available:<\/p>\n

\"\"

Historic Data for the Mortgage Credit Availability Index<\/p><\/div>\n

As we can see, the index stood at about 400 in 2004. Mortgage credit became more available as the housing market heated up, and then the index passed 850 in 2006. When the real estate market crashed, so did the MCAI (to below 100) as mortgage money became almost impossible to secure. Thankfully, lending standards have eased somewhat since. The index, however, is still below 150, which is about one-sixth of what it was in 2006.<\/p>\n

Why did the index rage out of control during the housing bubble?<\/strong><\/h4>\n

The main reason was the availability of loans with extremely weak lending standards. To keep up with demand in 2006, many mortgage lenders offered loans that put little emphasis on the eligibility of the borrower. Lenders were approving loans without always going through a verification process to confirm if the borrower would likely be able to repay the loan.<\/p>\n

Some of these loans offered attractive, low interest rates that increased over time. The loans were popular because they could be obtained quickly and without the borrower having to provide documentation up front. However, as the rates increased, borrowers struggled to pay their mortgages.<\/p>\n

Today, lending standards are much tighter<\/strong>. As\u00a0Investopedia<\/em>\u00a0explains<\/a>, the risky loans given at that time are extremely rare today, primarily because lending standards have drastically improved:<\/p>\n

\u201cIn the aftermath of the crisis, the U.S. government issued new regulations to improve standard lending practices across the credit market, which included tightening the requirements for granting loans.\u201d<\/em><\/p><\/blockquote>\n

An example of the relaxed lending standards leading up to the housing crash is the FICO\u00ae credit score associated with a loan. What\u2019s a FICO\u00ae score? The website\u00a0myFICO<\/em>\u00a0explains<\/a>:<\/p>\n

\u201cA credit score tells lenders about your creditworthiness (how likely you are to pay back a loan based on your credit history). It is calculated using the information in your credit reports. FICO\u00ae Scores are the standard for credit scores\u2014used by 90% of top lenders.\u201d
\n<\/em><\/p><\/blockquote>\n

During the housing boom, many mortgages were written for borrowers with a FICO score under 620.\u00a0Experian<\/em>\u00a0reveals<\/a>\u00a0that, in today\u2019s market, lenders are more cautious about lower credit scores:<\/p>\n

\u201cStatistically speaking, 28% of consumers with credit scores in the Fair range are likely to become seriously delinquent in the future\u2026Some lenders dislike those odds and choose not to work with individuals whose FICO\u00ae Scores fall within this range.\u201d<\/em><\/p><\/blockquote>\n

There are definitely still\u00a0loan programs<\/a>\u00a0that allow a 620 score. However, lending institutions overall are much more attentive about measuring risk when approving loans. According to\u00a0Ellie Mae\u2019s<\/em>\u00a0latest\u00a0Origination Insight Report<\/a>, the average FICO\u00ae score on all loans originated in February was 753.<\/p>\n

The graph below shows the billions of dollars in mortgage money given annually to borrowers with a credit score under 620.<\/p>\n

\"\"

Mortgage Originations in Billions with < 620 FICO Score<\/p><\/div>\n

In 2006, mortgage entities originated $376 billion dollars in loans for purchasers with a score under 620. Last year, that number was only $74 billion.<\/p>\n

Bottom Line<\/strong><\/h3>\n

In 2006, lending standards were much more relaxed with little evaluation done to measure a borrower\u2019s potential to repay their loan. Today, standards are tighter, and the risk is reduced for both lenders and borrowers. These are two very different housing markets, so there\u2019s no need to panic over today\u2019s lending standards.<\/p>\n

Contact us:<\/strong>
\nPHP Houses
\n142 W Lakeview Ave
\nUnit 1030
\nLake Mary, FL 32746
\nPh:\u00a0(407) 519-0719<\/span>
\nFax:\u00a0(407) 205-1951<\/span>
\nemail:\u00a0info@phphouses.com<\/p>\n

Let\u2019s Connect:<\/strong>
\nFacebook<\/a>
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\nTwitter<\/a>
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THE INFORMATION PRESENTED IN THIS ARTICLE IS FOR EDUCATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSIDERED LEGAL, FINANCIAL, OR AS ANY OTHER TYPE.<\/em><\/h6>\n","protected":false},"excerpt":{"rendered":"

Recent articles about the availability of low down payment loans and down payment assistance programs are causing fear that we\u2019re returning to the bad habits seen 15 years ago. Finish Reading There\u2019s No Reason To Panic Over Today\u2019s Lending Standards<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[69],"tags":[15,44,43,268,45,18,91,52,49,42,40,341,55,342,63,20,12,48,13,28,54,47,19,17],"_links":{"self":[{"href":"https:\/\/phphouses.com\/blog\/wp-json\/wp\/v2\/posts\/1592"}],"collection":[{"href":"https:\/\/phphouses.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/phphouses.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/phphouses.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/phphouses.com\/blog\/wp-json\/wp\/v2\/comments?post=1592"}],"version-history":[{"count":1,"href":"https:\/\/phphouses.com\/blog\/wp-json\/wp\/v2\/posts\/1592\/revisions"}],"predecessor-version":[{"id":1597,"href":"https:\/\/phphouses.com\/blog\/wp-json\/wp\/v2\/posts\/1592\/revisions\/1597"}],"wp:attachment":[{"href":"https:\/\/phphouses.com\/blog\/wp-json\/wp\/v2\/media?parent=1592"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/phphouses.com\/blog\/wp-json\/wp\/v2\/categories?post=1592"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/phphouses.com\/blog\/wp-json\/wp\/v2\/tags?post=1592"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}