Are Mortgage Lending Standards Really THAT Bad?

by Peter Thomas Ricci

We keep hearing that mortgage lending standards are unfairly tight, but does the data support that meme?


One of the more prevailing memes in the housing recovery has been the relative tightness of lending standards on residential mortgages, and that if only banks would realize that we’re out of the recession, and begin lending their money more fluidly, then agents, homebuilders and the greater housing market could really take off.

That is a common utterance among association groups, but is it supported in the data? To find out, we first consulted the National Association of Realtors’ Home Buyer and Seller Generational Trends report, which found that homebuyers are actually much less apocalyptic on mortgage standards than you’d expect. See our chart below for an idea:

To be fair, conventional mortgages still make up a relatively small share of the mortgage pie, while FHA mortgages still make up a disproportionately large share; just 49 percent of mortgages have been conventional thus far in 2013, and 33 percent have been FHA.

But still, the overall trends are encouraging. The latest Mortgage Credit Availability Index (MCAI) from the Mortgage Bankers Association, which analyzes data from the AllRegs Market Clarity product, edged up 2.2 percent from June to July to a rating of 112.3; a higher index indicates looser credit from banks.

That’s the fourth consecutive month of increases for the MCAI, and since bottoming in February 2012 at roughly 99, it’s up more than 13 percent.

Are we way off? Is credit still tight, and much tighter than the data reveals? Let us know in comments!

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