With record high appreciation rates for home values, many are worried that another housing bubble may be in the distant future. The last housing bubble was ten years ago. Loosening of standards for mortgage credit was one of the reasons we experienced the housing boom and bust.
The University of North Carolina completed a study right after the crisis and found: "lenders began originating large numbers of high risk mortgages from around 2004 to 2007, and loans from those vintage years exhibited higher default rates than loans made either before or after."
Another study revealed those very risky loans were the reason for the housing crisis. Findings from John V Duca, John Muellbauer, and Anthony Murphy revealed, "Our findings indicate that swings in credit standards played a major, if not the major role in driving the recent boom and bust in US house prices."
Comparing today's Mortgage & Loan Standards to those During 2004 - 2007
The Mortgage Credit Availability Index (MCAI) is an index by The Mortgage Banker's Association that tracks mortgage standards. A decline in the index signifies that standards for lending are getting tighter, while an increase in the MCAI reveals standards are loosening.
As shown in the chart below going back to the time between 2004 and 2007 when loose standards were the culprit for the housing bubble, it is clear that, though the MCAI has increased very little over the last several years, we aren't even close to the standards before the housing disaster.
Mortgage Loan standards are still very restrictive and preventing many qualified purchasers from obtaining the mortgage credit they deserve.
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Disclaimer:The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. John Sabia PA and Keeping Current Matters, Inc. does not guarantee or warrant the accuracy or completeness of the information or opinions contained herein. Nothing herein should be construed as investment advice. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision. John Sabia PA and Keeping Current Matters, Inc. will not be liable for any loss or damage caused by your reliance on the information or opinions contained herein.