Over the past two years, lenders have been turning down more and more mortgage applications. In 2009, 23.5 percent were turned down, and that number rose by 3.5 percent in 2010. And although everyone agrees that lenders cannot return to the “freewheeling” policies that originally inflated the housing bubble, many are concerned that now lending practices are actually interfering with the housing recovery[1]. “As the noose on credit availability tightens, credit is being choked off at a time when the housing market is extremely fragile,” explains senior managing director at Amherst Securities Group Laurie Goodman. And Lou Barnes, a mortgage banker in Boulder, Colorado, describes “Fannie and Freddie, in particular,” as “behaving like a hurricane insurance company that won’t write any policies within 200 miles of an ocean.”
However, Fannie Mae representatives say that although their lending restrictions are painful for the housing market, they are necessary. “This is a return to historical standards,” explains Fannie Mae chief economist Doug Duncan. And although some large banks are starting to ease underwriting standards for commercial loans, international loans and some asset based lending, standards on credit cards, home equity debt, construction and home mortgages remain very strict[2].
Do you think that this is an appropriate practice, or should lenders loosen up?
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[1] http://online.wsj.com/article/SB10001424052702304569504576405660006330644.html?mod=googlenews_wsj
[2] http://www.marketwatch.com/story/large-banks-starting-to-ease-lending-standards-2011-06-23
The key phrase is:“This is a return to historical standards,” They should have NEVER been “left!” To call current lending terms “very strict” is a misnomer. That’s why 60%+ off all loan modifications have gone into default…….. AGAIN! These people could never afford those homes in the first place. Its that damn simple!
StuckinSoPa,
Sorry to disagree, but you missed the point. It’s not *these people* (whom I agree should never have gotten loans) who now have no access to credit, it’s otherwise solid borrowers who are locked out by the now over-strict lending standards. As it always does, the pendulum has swung too far.
Many of the regional lenders are looking at the looming re-sets in the commercial real estate arena and simply cannot add any risk. None at all.
If they take it on and the commercial sector goes through the sort of troubles that is being predicted (like in the 1980′s) then those lenders will be facing either a wipe out or they will be closed by the FDIC.
Either way the upside down of the marketplace is not over by a long shot…
Which “historical standards” are we talking about? Maybe the one where there were no GSE’s, when your banker loaned to you only because he knew you and your family. I’d be for that, except that my local banker is not local enough to care whether or not he has my business. He knows his company is too big to fail, despite the fact that there are 10 other banks within a mile of his.
As for Fannie & Freddy, in particular, they are operating without any clue as to their futures. Its only prudent that they do nothing until they get new marching orders or get abolished. Lenders need to learn to work without them for a while, at least.