Lending Standards Are Not Like They Were Leading Up to the Crash You might be stressed we & rsquo; re heading for a housing crash, but there are numerous reasons why this housing market isn & rsquo; t like the one we sawin 2008. One of which is how loaning requirements are various today. Here & rsquo; s a take a look at the information to help prove it. Monthly, the Mortgage Bankers Association(MBA)releases the Mortgage Credit Availability Index(MCAI). According to their site: & ldquo; The MCAI provides the only standardized quantitative index that is exclusively concentrated on home mortgage credit. The MCAI is ... a summary step which shows the availability of home mortgage credit at a point in time. & rdquo; Basically, the index figures out how easy it is to get
a home loan. Have a look at the chart below of the MCAI considering that they started tracking this data in 2004. It demonstrates how loaning“requirements have actually changed in time. It works like this: When lending requirements are less rigorous, it & rsquo; s easier to get a mortgage, and the index (the green line in the graph)is higher. When providing standards are more stringent, it& rsquo; s harder to get a home loan, 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 quite various. Given that the crash, the index decreased because providing standards got tighter, so today it’& rsquo; s more difficult to get a home loan.
Loose Lending Standards Contributed to the Housing Bubble
One of the primary aspects that contributed to the housing bubble was that lending requirements were a lot less strict back then. Realtor.com discusses it like this:“& ldquo; In the early 2000s, it wasn’& rsquo; t precisely tough to snag a home mortgage... a lot of mortgages were doled out to individuals who lied about their earnings and work, and couldn’& rsquo; t actually pay for homeownership.”& rdquo; The tall peak in the graph above suggests that leading up to the housing crisis, it was a lot easier to get credit, and the requirements for getting a loan were far from rigorous. Back then, credit was widely offered, and the limit for receiving a loan was low.
Lenders were authorizing loans without constantly going through a confirmation procedure to confirm if the debtor would likely be able to pay back the loan. That indicates financial institutions were providing to more customers who had a greater risk of defaulting on their loans.
Today’& rsquo; s Loans Are Much Tougher To Get than Before
As mentioned, lending requirements have changed a lot considering that then. Bankrate explains the difference:“& ldquo; Today, lending institutions impose tough standards on debtors –-- and those who are getting a mortgage overwhelmingly have excellent credit.”& rdquo; If you recall at the chart, you’& rsquo; ll notice after the peak around the time of the real estate crash, the line representing the index decreased significantly and has remained low since. The line is far below where requirements were even in 2004 –-- and it’& rsquo; s getting lower. Joel Kan, VP and Deputy Chief Economist at MBA, provides the most recent upgrade from May:
“& ldquo; Mortgage credit schedule decreased for the 3rd consecutive month ... With the decrease in schedule, the MCAI is now at its lowest level considering that January 2013.”& rdquo; The decreasing index recommends standards are getting much tougher –-- which makes it clear we’& rsquo; re far from the extreme financing practices that contributed to the crash.
