Mortgage Qualifications Turned "Upside Down" Over the Weekend?
We caught this weekend story about banks changing their lending standards for mortgages.
As we've pointed out, sometimes weekend reports address issues that, while they may be important, are lost in the shuffle simply because people don't read media stories published on weekends as much as those published Monday - Friday. Not sure why this one would be placed on the weekend, since it seems designed for the cheerleaders who keep insisting that the economy is "picking up steam." You would think such a story might be good front page material for these cheerleaders.
(To be clear, some areas of the economy may indeed be picking up steam; but whether the overall economy in the U.S. continues chugging away until the effects of the 2007-2009 crisis melt away is another story.)
Setting aside the question of why this story appeared on the weekend, what hits you between the eyes here is the assertion in the sub-headline: "Banks ease standards enacted after the housing boom turned to bust in sign of rising confidence." This implies that standards before the "tightening" imposed after the collapse of the housing market were somehow normal or reasonable. They weren't. And that's a big part of what eventually led to the disastrous unraveling that began in 2006. But the way the headline reads, it sounds like banks are now returning to healthy lending practices, doesn't it?
To be sure, the tight standards banks imposed after the collapse may not be ideal for firing up sales in the residential real estate market, but they were certainly consistent with sound business practice. We should ask wonder whether these newly loosened standards will prove healthy. Here's one hint they may not be:
Mortgage Lenders Ease Rules for Home Buyers in Hunt for Business
Banks Ease Standards Enacted After the Housing Boom Turned to Bust in Sign of Rising Confidence
As we've pointed out, sometimes weekend reports address issues that, while they may be important, are lost in the shuffle simply because people don't read media stories published on weekends as much as those published Monday - Friday. Not sure why this one would be placed on the weekend, since it seems designed for the cheerleaders who keep insisting that the economy is "picking up steam." You would think such a story might be good front page material for these cheerleaders.
(To be clear, some areas of the economy may indeed be picking up steam; but whether the overall economy in the U.S. continues chugging away until the effects of the 2007-2009 crisis melt away is another story.)
Setting aside the question of why this story appeared on the weekend, what hits you between the eyes here is the assertion in the sub-headline: "Banks ease standards enacted after the housing boom turned to bust in sign of rising confidence." This implies that standards before the "tightening" imposed after the collapse of the housing market were somehow normal or reasonable. They weren't. And that's a big part of what eventually led to the disastrous unraveling that began in 2006. But the way the headline reads, it sounds like banks are now returning to healthy lending practices, doesn't it?
To be sure, the tight standards banks imposed after the collapse may not be ideal for firing up sales in the residential real estate market, but they were certainly consistent with sound business practice. We should ask wonder whether these newly loosened standards will prove healthy. Here's one hint they may not be:
The changes also are a recognition by lenders that the business of refinancing old mortgages, which had been a huge profit center for banks, is nearly tapped out. To generate future profits, banks will have to compete for borrowers who may not have perfect credit or large down payments.Sounds like banks could be stretching a bit too far in their efforts to drum up business. Refinancing homeowners with healthy credit scores and solid financials makes good business sense. Will going after those with less healthy credit history and weaker financials lead to the sorts of practices that stoked the housing bubble beginning in the early 2000s?
While smaller lenders are trying to appeal to first-time buyers, larger lenders are gradually reducing down payments for jumbo loans—those too large for government backing—to woo wealthy customers. EverBank began accepting down payments of 10.1% for jumbo borrowers with strong credit this year, down from 20%, and Wells Fargo reduced to 15% from 20% its minimum down payment for jumbos last year. Bank of America made the same change for mortgages of up to $1 million.Mr. Fratantoni indicates that standards aren't now being turned upside down, with the key phrase being "for now." We'll have to wait and see how this develops. Will this prove to be a sign of hope or the harbinger of another round of folly?
For now, economists and lenders say there are few signs of any return to the carelessness of the past decade's destructive credit bubble. "Credit is loosening, but it is loosening from a tight starting point," said Mr. Fratantoni of the MBA.
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