May 20, 2016
At first glance, it may seem that mortgage credit, for all but the most pristine borrowers, remains very tight. According to Consumer Financial Protection Bureau (CFPB) Director Richard Cordray, although the millennial generation is beginning to show more interest in home-owning opportunities, they, like many others, are hindered by the issue of tightening credit. According to Credit Sesame, the average credit score in the US is 625. Black Knight Financial Services, paints an even more dismal picture, revealing that in 2015, a mere 20 percent of purchase loans were issued to borrowers with credit scores less than 700, marking the lowest level in over a decade. To put things in perspective, the weighted average credit score for the same quarter came in at 755.
Though evidence of a rebound is beginning to come to light, many potential borrowers, including millennials, who have heard these claims publicly repeated by respected policy makers and economists, remain hesitant, mistakenly regarding this initial impression as fact, and available figures can make a potential buyer feel increasingly hopeless.
The Urban Institute reports, that due to tight lending practices 5.2 million borrowers that did not boast pristine credit were unable to get a mortgage loan between 2009 and 2014. Furthermore, the Urban Institute asserts that the “tight credit box” in which the market currently operates by limiting the buyer pool, which slows the housing marketing recovery. Fed Chair Janet Yellen addressed this in her FOMC press conference, stating, “I’ve been surprised that housing hasn’t recovered more robustly than it has. In part, I think it reflects very tight credit…for any borrower that doesn’t have pristine credit…” Cordray’s speech went on to highlight both progress and pitfalls currently facing the housing markets, calling much-needed attention the mortgage industry, and specifically addressing lenders.
Despite the bleak credit picture, potential home buyers need not be discouraged by the daunting task of securing a mortgage, just because their credit is less than perfect. Cordray pointed out that mortgage lending practices have improved since the financial crisis. He explained, “Credit is still too tight, at least in my view, but we can now look in the rear-view mirror and see that some of the undue fears people had about legal liability under the QM rule or market paralysis due to streamlining the mortgage disclosure forms, can be put in healthier perspective.”
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