For years the slow recovery was hampered by the
existence of tighter credit. A vicious cycle was created when the recession
caused consumer credit to worsen and at the same time banks tightened up on
lending standards. For some time we have been predicting that lending standards
in the real estate sector would not loosen up until two factors emerged. Factor
one was the stability or recovery of real estate values. It makes sense that
lenders would be shy about lending in a real estate sector in which the
underlying asset was unstable.
Yet, the real estate markets recovered over the
past few years without a significant improvement in lending standards. Why? Some
blamed it on new legislation aimed at making lenders more responsible with
regard to their lending. But most aspects of the legislation were not
implemented until recently. In reality, there was a second aspect we cited over
the past few years which has now come to fruition. For the past three years
lenders were inundated with refinances because of record low rates. Now with
rates still really low but a bit higher than they were, the refinance craze has
abated.
It makes sense that lenders would not lower
standards while they were overwhelmed with demand. Today, lending standards are
loosening because lenders are hungrier. Many national sources for real estate
loans have lowered their minimum credit score requirements. And we think that
this will flow into other areas of lending such as cars and business loans. This
is all part of building a virtuous cycle. Keep in mind that we are not looking
for a return to the subprime era or anything close to that. The new legislation
we cited makes sure lenders will be more careful. Underwriters are still
scouring loans with a fine-tooth comb. But it is interesting that while lenders
are implementing the new legislative standards, their requirements are getting
somewhat less restrictive.
Mike Ervin
Branch Manager
NMLS: 282715
W.J. Bradley Mortgage Capital, LLC
O: 650.735.5261
C: 650.766.8500
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