{"id":8062,"date":"2023-06-28T10:30:00","date_gmt":"2023-06-28T10:30:00","guid":{"rendered":"https:\/\/thezakariagroup.com\/lending-standards-are-not-like-they-were-leading-up-to-the-crash\/"},"modified":"2023-06-28T10:30:00","modified_gmt":"2023-06-28T10:30:00","slug":"lending-standards-are-not-like-they-were-leading-up-to-the-crash","status":"publish","type":"post","link":"https:\/\/thezakariagroup.com\/lending-standards-are-not-like-they-were-leading-up-to-the-crash\/","title":{"rendered":"Lending Standards Are Not Like They Were Leading Up to the Crash"},"content":{"rendered":"<div><img decoding=\"async\" width=\"358\" src=\"https:\/\/files.keepingcurrentmatters.com\/content\/images\/20230627\/20230628-lending-standards-are-not-like-they-were-leading-up-to-the-crash.jpg\" alt=\"Lending Standards Are Not Like They Were Leading Up to the Crash Simplifying The Market\" loading=\"lazy\" style=\"display: block; margin-bottom: 5px; clear: both; max-width: 100%;\"><\/p>\n<p>You might be worried we\u2019re heading for a <a href=\"https:\/\/www.simplifyingthemarket.com\/2023\/05\/09\/why-todays-housing-market-is-not-about-to-crash\/\" rel=\"noopener noreferrer\" target=\"_blank\" style=\"color: rgb(5, 99, 193);\">housing crash<\/a>, but there are many reasons why this housing <a href=\"https:\/\/www.simplifyingthemarket.com\/2023\/06\/08\/this-real-estate-market-is-the-strongest-of-our-lifetime\/\" rel=\"noopener noreferrer\" target=\"_blank\" style=\"color: rgb(5, 99, 193);\">market<\/a> isn\u2019t like the one we saw in 2008. One of which is how lending standards are different today. Here\u2019s a look at the data to help prove it.\u00a0<\/p>\n<p>Every month, the <em>Mortgage Bankers Association<\/em> (MBA) releases the <a href=\"https:\/\/www.mba.org\/news-and-research\/newsroom\/news\/2022\/05\/10\/mortgage-credit-availability-decreased-in-april\" rel=\"noopener noreferrer\" target=\"_blank\" style=\"color: rgb(5, 99, 193);\"><em>Mortgage Credit Availability Index<\/em><\/a> (MCAI). According to their website:<\/p>\n<blockquote><p><em>\u201cThe MCAI provides the only standardized quantitative index that is solely focused on mortgage credit. The MCAI is . . . a summary measure which indicates the availability of mortgage credit at a point in time.\u201d<\/em><\/p><\/blockquote>\n<p>Basically, the index determines how easy it is to get a mortgage. Take a look at the graph below of the MCAI since they started keeping track of this data in 2004. It shows how lending standards have changed over time. It works like this:\u00a0<\/p>\n<ul>\n<li><strong>When lending standards are less strict, <\/strong>it\u2019s easier to get a mortgage, and the index <em>(the green line in the graph)<\/em> is higher.<\/li>\n<li><strong>When lending standards are stricter, <\/strong>it\u2019s harder to get a mortgage, and the line representing the index is lower.<\/li>\n<\/ul>\n<p><a href=\"https:\/\/www.simplifyingthemarket.com\/content\/images\/20230627\/20230628-lending-standards-still-under-control.png\" rel=\"noopener noreferrer\" target=\"_blank\"><img decoding=\"async\" src=\"https:\/\/files.keepingcurrentmatters.com\/content\/images\/20230627\/20230628-lending-standards-still-under-control.png\"><\/a><\/p>\n<p>In 2004, the index was around 400. But, by 2006, it had gone up to over 850. Today, the story is quite different. Since the crash, the index went down because lending standards got tighter, so today it\u2019s harder to get a mortgage.<\/p>\n<h4><strong>Loose Lending Standards Contributed to the Housing Bubble<\/strong><\/h4>\n<p>One of the main factors that contributed to the housing bubble was that lending standards were a lot less strict back then. <em>Realtor.com<\/em> <a href=\"https:\/\/www.realtor.com\/news\/trends\/is-the-housing-market-in-a-bubble-how-indicators-today-compare-with-the-great-recession\/\" rel=\"noopener noreferrer\" target=\"_blank\" style=\"color: rgb(5, 99, 193);\">explains<\/a> it like this:\u00a0<\/p>\n<blockquote><p><em>\u201cIn the early 2000s, <\/em><strong><em>it wasn\u2019t exactly hard to snag a home mortgage<\/em><\/strong><em>. . . . plenty of mortgages were doled out to <\/em><strong><em>people who lied about their incomes and employment, and couldn\u2019t actually afford homeownership<\/em><\/strong><em>.\u201d<\/em>\u00a0<\/p><\/blockquote>\n<p>The tall peak in the graph above indicates that leading up to the housing crisis, it was much easier to get credit, and the requirements for getting a loan were far from strict. Back then, credit was widely<s> <\/s>available, and the threshold for qualifying for a loan was low.<\/p>\n<p>Lenders were approving loans without always going through a verification process to confirm if the borrower would likely be able to repay the loan. That means creditors were lending to more borrowers who had a higher risk of defaulting on their loans.<\/p>\n<h4><strong>Today\u2019s Loans Are Much Tougher To Get than Before<\/strong><\/h4>\n<p>As mentioned, lending standards have changed a lot since then. <em>Bankrate<\/em> <a href=\"https:\/\/www.bankrate.com\/real-estate\/is-the-housing-market-about-to-crash\/#reasons\" rel=\"noopener noreferrer\" target=\"_blank\" style=\"color: rgb(5, 99, 193);\">describes<\/a> the difference:\u00a0<\/p>\n<blockquote><p><em>\u201cToday, lenders impose tough standards on borrowers \u2013 and those who are getting a mortgage overwhelmingly have excellent credit.\u201d<\/em><\/p><\/blockquote>\n<p>If you look back at the graph, you\u2019ll notice after the peak around the time of the housing crash, the line representing the index went down dramatically and has stayed low since. In fact, the line is far below where standards were even in 2004 \u2013 and it\u2019s getting lower. Joel Kan, VP and Deputy Chief Economist at MBA, <a href=\"https:\/\/www.mba.org\/news-and-research\/research-and-economics\/single-family-research\/mortgage-credit-availability-index-x241340\/2023\/06\/13\/mortgage-credit-availability-decreased-in-may\" rel=\"noopener noreferrer\" target=\"_blank\" style=\"color: rgb(5, 99, 193);\">provides<\/a> the most recent update from May:<\/p>\n<blockquote><p><em>\u201cMortgage credit availability decreased for the third consecutive month . . . With the decline in availability, the MCAI is now at its lowest level since January 2013.\u201d<\/em><\/p><\/blockquote>\n<p><strong>The decreasing index suggests standards are getting much tougher \u2013 which makes it clear we\u2019re far away from the extreme lending practices that contributed to the crash.<\/strong><\/p>\n<h3>Bottom Line<\/h3>\n<p>Leading up to the housing crash, lending standards were much more relaxed with little evaluation done to measure a borrower\u2019s potential to repay their loan. Today, standards are tighter, and the risk is reduced for both lenders and borrowers. This goes to show, these are two very different housing markets, and this market isn\u2019t like the last time.<\/p>\n<\/div>\n<p class=\"wpematico_credit\"><small>Powered by <a href=\"http:\/\/www.wpematico.com\" target=\"_blank\" rel=\"noopener\">WPeMatico<\/a><\/small><\/p>\n","protected":false},"excerpt":{"rendered":"<p>You might be worried we\u2019re heading for a housing crash, but there are many reasons why this housing market isn\u2019t like the one we saw in 2008. One of which is how lending standards are different today. Here\u2019s a look at the data to help prove it.\u00a0 Every month, the Mortgage Bankers Association (MBA) releases [&hellip;]<\/p>\n","protected":false},"author":101010,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false}}},"categories":[99,100,102],"tags":[],"jetpack_publicize_connections":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v22.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Lending Standards Are Not Like They Were Leading Up to the Crash - The Zakaria Group<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/thezakariagroup.com\/lending-standards-are-not-like-they-were-leading-up-to-the-crash\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Lending Standards Are Not Like They Were Leading Up to the Crash - The Zakaria Group\" \/>\n<meta property=\"og:description\" content=\"You might be worried we\u2019re heading for a housing crash, but there are many reasons why this housing market isn\u2019t like the one we saw in 2008. 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