Breaking Down Today’s Lending Standards
It’s no surprise that many are afraid the real estate market is starting to look a lot like it did in 2006, just prior to the housing crash. Why? The availability of mortgage money is just one of the factors they’re pointing to.
Recent information being spread about the availability of low down payment loans and down payment assistance programs are causing fear that we’re returning to the bad habits seen 15 years ago. Today, we want to alleviate some of your concerns.
Several times a year, the Mortgage Bankers Association releases an index called The Mortgage Credit Availability Index (MCAI). To put it simply, the index determines how easy it is to get a mortgage. The higher the index, the more easier getting a mortgage becomes.
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. The good news, however, is that it is still below 150, which is about one-sixth of what it was in 2006.
What happened to the index during the housing bubble?
To keep up with demand in 2006, many mortgage lenders were approving loans without always going through a verification process to confirm if the borrower would likely be able to repay the loan. Some of these loans offered low interest rates that increased over time. However, as the rates increased, borrowers struggled to pay their mortgages.
Thankfully, Today’s lending standards are much tighter. Lending institutions overall are much more attentive about measuring risk when approving loans.
What does this mean?
In 2006, just prior to the housing crash, lending standards were relaxed with little done to measure a borrower’s potential to repay their loan.
Today, however, standards are stricter, and the risk has been reduced for both lenders and borrowers. These are two very different housing markets.
Get in touch with us today to learn more about navigating the real estate market!