Lending Standards: Then vs. Now
Concerns about another housing crash may be looming, but there are crucial differences between the current market and the 2008 crisis. One significant factor is the contrast in lending standards. Let's look at the data.
The Mortgage Bankers Association (MBA) releases the Mortgage Credit Availability Index (MCAI) monthly, providing insight into mortgage credit accessibility. Higher index values indicate easier mortgage acquisition, while lower values reflect stricter standards.
In 2004, the index stood around 400, peaking above 850 in 2006. However, post-crash, lending standards tightened, making it more challenging to secure a mortgage.
Before the crisis, loose standards allowed mortgages to be obtained with little income verification. Lenders granted loans to risky borrowers. Today, lenders impose tougher standards, favoring those with excellent credit.
The index has significantly declined since the crash and remains well below 2004 levels. The latest update from May shows a continued decrease, signifying stricter lending standards.
In conclusion, the housing market now operates with much tighter lending standards compared to the pre-crash era. This indicates a departure from the practices that contributed to the previous housing crisis.