Relaxed credit standards: What lenders need to worry about

by MPA10 Dec 2014

By David Lykken
Special to MPA

On my Lykken on Lending radio show, I recently participated in a round-table discussion about a Wall Street Journal article discussing the relaxing of credit standards. Regulators have recently agreed to relax standards in order to give lenders more power to put more people into homes. This is a good thing, right? It's what we've been fighting for for years.


Many lenders, however, are skeptical. And rightly so, I think. The thing about relaxed standards is that they can just as easily be made rigid again. It's the old "bait and switch" tactic at work. Lenders feel as if they can make more investment and expand their operations and, as soon as they do so, the regulators change their mind and tighten the standards once gain. Then, the lenders lose out.


I'm not trying to breed distrust about lenders for the regulators. I'm merely suggesting that we proceed with caution. When credit standards relax, we shouldn't become overly optimistic. We need to take small steps, because we never know when the folks in Washington might change their mind.


Whatever you do, keep your ear to the ground. Stay up on the news. Be vigilant. Those who succeed will be those who are careful enough to not get caught off guard.


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