Have credit restrictions gotten too tight?

by MPA04 Sep 2014
By Davied Lykken
Special to MPA


No one is denying that the financial crisis occurring just a few years ago is, at least in part, the fault of lax standards in issuing credit. Before the crisis, mortgage-backed securities were considered some of the safest investments you could make. After the recession, however, the reputation of these investments took a hit. Having securities backed by mortgages loses its luster and appeal when people can't pay their mortgages.
 
And I'll be the first to admit that there were probably far too many home loans issued in the last ten years that should have never been issued. No doubt, our industry became too lax in our standards and the entire economy has paid for it. All of that being said, I'm starting to wonder if we've swung too far in the other direction.
 
If there's one thing that history has taught us as human beings, it's that we tend to overreact. It isn't enough for us to correct a failure or restore balance; we always tend to push back too far in the other direction. I think that may be what is happening in our industry. If credit restrictions are too tight and those who can afford the risk aren't allowed to take it, the consequences for the economy can be equally devastating.
 
There is no growth without risk. And finding the right amount of risk to be permitted is certainly a difficult challenge. But, we just need to be cautious about how much regulation is too much. People need their freedom to borrow, and we need to be sure we are striving to give it to them in the appropriate amount.

David Lykken is 40-year industry veteran who consults on virtually all aspects of mortgage banking. David hosts a successful weekly radio program called “Lykken On Lending” (www.LykkenOnLending.com) that is heard each Monday at noon (Central Standard Time) by thousands of mortgage professionals.

COMMENTS

  • by | 9/4/2014 11:45:49 AM

    Yes credit is too tight.

  • by | 9/4/2014 11:52:14 PM

    Ok, lets see. . . Weighted Ave FICO on FNMA MBS = 740 , Rates up over the last 18 months, FHA mortgage limits rolled back from $343K to $271K, and oh yes, implementation of Dodd Frank ATR/QM (can we say "future lawsuits pending") in Jan 2014. Oh, why don't we also kill FNMA/FHLMC, (and why not FHA/VA while we are at it) to find out if private capital will really show up and offer affordable mortgages, on reasonable terms, to average individuals? And they scratch their heads in Washington DC and wonder why housing is struggling again!!

Poll

Is TILA-RESPA a good or bad thing long term?