Hello, LOs!
It's hard to understate how much the housing market has changed in the last 15 years. One way to assess how much lending standards have tightened up since the recession is by looking at borrower risk profiles.
In the years leading up to the great recession, from 2004 to 2007, 12% of newly originated mortgages went to "subprime borrowers," those with lower credit scores, according to New York Fed researchers.
The typical borrower profile has changed sharply since then. In the third quarter of 2021, out of the total $1.11 trillion in newly originated mortgage debt, 69% of it went to borrowers with credit scores over 760, according to the New York Fed's quarterly report on household debt and credit.
"The credit scores of newly originated mortgages had increased in the early part of the pandemic, and although they edged down slightly, they still remain very high and reflect a continuing high quality of newly opened mortgages as well as a higher share of refinances," the New York Fed researchers wrote.
The data is based on a random sample of Equifax credit-report data, which has results on 44 million individuals.
Over the years, many have noted that risky and unsustainable loan products led to the foreclosure crisis.
Researchers at the Urban Institute measure both the "product risk" and "borrower risk" in their monthly housing finance report. Since the crisis, product risk has bottomed out, and borrower risk has declined sharply as well. In the second quarter of 2021, the housing credit availability index was 5.2%, compared to nearly 17% in 2007.
Reasonable lending standards, its report points out, occur when there is at least some product and borrower risk.
LOs, what examples of "product risk" would you like to see return to the market? Those of you who remember the time pre-recession, are there products or practices that were eliminated that — perhaps — should have been tweaked instead?
Georgia Kromrei
Senior Mortgage Reporter, HousingWire
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