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. “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.
Do you think that this is an appropriate practice, or should lenders loosen up?
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