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Jim Morrison

In bad old days before the subprime loan crash, almost anyone who could fog a mirror could qualify for a no-doc mortgage. Borrowers loved those loans because they gave them access to credit they couldn’t get otherwise. Lenders loved them because they made a ton of money on these loans and quickly sold them to investors, pocketing the cash and assuming almost no risk.

Most people didn’t see the crash coming, but everyone knows the story by now.

These loans cratered and set off a global recession that much of the world is still recovering from. We learned – or were supposed to have learned – that while everyone should have a place to live, not everyone should have a mortgage.

Credit availability tightened up dramatically and as a result it was more difficult to get a mortgage for a while. Many people who make their living in real estate thought it was too difficult and still do.

I’ve written about this before. The current homeownership rate is about 63.7 percent. Economists say a homeownership rate of between 64 and 65 percent is considered healthy and sustainable. They say our aging population is likely to increase the homeownership rate into that range over time.

So when I read all the mostly uncritical coverage about changes in credit reporting that will raise people’s credit scores and Fannie and Freddie increasing the amount of debt borrowers can have and still qualify for loans, I wonder if people are forgetting the lessons of the past?

What problem is increasing mortgage credit availability intended to cure? If homeowner rates are right about where they ought to be, these changes seem to be designed to help lenders sell more loans.

These changes will benefit some small number of buyers. They may also hurt buyers who may get into loans they can’t handle.

Clearly today’s lending climate is different from the early 2000s. But isn’t prioritizing lenders’ profits over the health of the market something we’ve seen before? It didn’t end well last time.

Easing Credit Requirements Causes Unease

by Jim Morrison time to read: 1 min