JSMedia – In an effort to spur home sales, mortgage lenders are easing their credit standards and taking more risks. The MCAI index, a measure of risk in lending, increased by almost 10 points in April, reaching its highest level since 2014. This increase is good news for buyers who are on the fence about buying a home. The index is a gauge of how much risk a mortgage lender is willing to take.
The latest figures from the Housing Finance Policy Center show that the availability of mortgage credit is 5.2 percent in Q2 2021, down from 5.4 percent in Q3 2020. The slight loosening in credit standards is attributed to increased borrower default risks in all three major origination channels, but the GSE channel has a tighter credit standard than other channels. However, the survey does not include all types of loans, and it does not include all mortgage types.
This trend has not been widespread. However, the recent decline in the number of defaults among homebuyers has created an environment that allows mortgage lenders to take on more risks. While this may be good news for borrowers, it could also be a bad sign for the economy. Lenders are riskier when home prices are rising. Moreover, the market has historically tighter credit standards for residential and business mortgages.
Mortgage Lenders Loosening Credit Standards and Taking More Risks
Banks have tightened their credit standards in the run-up to the financial crisis. The rise in non-conforming loans has exacerbated the concerns about lending standards. According to the latest Federal Reserve Board, only six percent of banks are concerned about excessive credit risk, up from 3.1 percent the week before. Refinancing volume continues to fall despite the rising rates, accounting for 60.3% of origination volume.
Several depository banks tightened their lending standards during the mortgage crisis. They plan to relax their underwriting standards and take more risks to capture the increase in non-conforming business. While overall mortgage credit availability is rising, it is still nowhere near the pre-crisis levels. Over two million loans remain in forbearance. These new trends in lending have implications for the housing industry. As a result, the risks to the housing market are growing.
Despite the recent changes, the economy continues to grow. As the unemployment rate has fallen, the amount of credit available to consumers has decreased. This trend is expected to continue as long as the economy continues to improve. This is great news for homeowners and for the economy. Those with poor credit ratings will have a tougher time getting a mortgage. If the market is growing, the risk of foreclosure will decrease as well.
The new rule in QM has removed guidelines that lenders must meet. In addition, the CFPB has relaxed lending standards to increase home sales. This is good news for homebuyers. But it isn’t good news for lenders. Despite tighter lending standards, the economy is still growing. Currently, the housing market has more risk tolerance than ever. It has become easier for mortgage providers to lend to borrowers with poor credit histories than ever.
The OCC has stated that lenders are easing their credit standards in order to boost the economy. The availability of credit is up during the economic expansion. Although interest rates are rising, the cost of lending has fallen. The average loan size is increasing by 2 percent in Q1 and is largely unchanged in Q2 of this year. The new trends may make the homebuying market more competitive. The broader housing market is good for homeowners.
This trend has helped mortgage lenders loosen their credit standards. Since the 2008 crash, mortgage lending has remained tight. Several factors have contributed to this trend, including abundant liquidity. As a result, the cost of mortgages has decreased. Moreover, the accelerated growth in the housing market has prompted banks to increase their lending standards. During the economic expansion, lenders have relaxed their credit standards and are taking more risks in order to keep up with the rising costs of borrowing.