King Solomon reminds us that wisdom and houses go hand in hand for a prosperous and blessed life. “”Wisdom hath built herself a house,” he tells us in Proverbs 9:1. Now, in spite of the tighter lending standards that took effect in January 2014, more hopeful homeowners may be able to qualify for a mortgage – even if they have less than optimal credit scores. And that has market watchers wondering about the possibility of another housing crash.
The much-publicized crash of 2008 came about largely because of loose lending standards that had banks offering mortgages to virtually anyone who applied, regardless of their creditworthiness. And many of those new those borrowers ended up defaulting down the line, triggering investigations into the shoddy lending practices and outright fraud among the nation’s big banks.
As those big banks were called to account in a string of multimillion dollar settlements, new legislation ushered in much tighter standards for granting mortgages in the first place: the Dodd Frank Act and the Qualified Mortgage Rule, which established a higher debt to income ration and required a larger down payment from most applicants.
But the Qualified Mortgage Rule and requirements like it aren’t absolutely binding. The Rule only provides lenders some protection against legal action if a loan conforming to the Rule goes bad. Lenders can always write whatever loans they choose.
And according to a new Business Insider report, it seems that more and more of them are choosing to do just that, approving loans to applicants with the lowest credit scores than at any time since the crash, and allowing down payments as low as 5% — or even zero in some cases.
What does this all mean for the future of the housing recovery? Are looser standards opening doors to new applicants that might keep the recovery momentum going? Or is the nation headed for another crash driven by the same factors as the previous one?
It’s always said that those who ignore the lessons of history are doomed to repeat it. The lessons of the crash are relatively fresh, and they’ve created a lending environment that’s different in key ways from the conditions that created that collapse.
For investors following Jason Hartman’s advice on building wealth through income property, though, the new discretionary practices by the nations lenders, along with relatively low interest rates, just may open doors to new opportunities in income property – and keep the housing market on the way t recovery. (Top image;Flickr/theconsumerist)
Badkar, Mamta. “Americans With Lower Credit Scores Are Finding It Easier To Take Out Mortgages.” Business Insider Finance. Business Insider. 21 Apr 2014.
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The Solomon Success Team