The Housing Bubble Blog put the question more neutrally in its post headline, “When Did Lending Standards Start Charging So Much?,” but the responses all point in one direction:
Readers suggested a topic on when loan standards changed. “Here’s my question for the gang – when did lending standards start changing so much? I was involved in real estate 20 years ago, mostly as a property manager, but also doing some sales in Capitol Hill/DC, a lot of shells and distressed stuff that was being rehabbed by investors.”
“I remember how difficult it was to get ‘investor’ loans back then, and that rental income was really discounted in terms of qualifying, etc.; as a result, we did a lot of seller-financed deals with a balloon in 3 to 5 years (usually paid off in a year or two when the property was rehabbed and sold).”
“When did it start becoming easy for folks to get these low- and no- doc loans and by 3, 5, 10 — whatever — properties to try and flip? I’d love a history of the change in standards if someone has some good insight — who (agencies/companies) started this shift?”
A reply, “read the Community Banking Bill. Then 911 came and then it was the excuse to open ALL flood gates.”….
“Just because the money was there from the secondary market, it didn’t mean the lenders should of been entitled to stop making prudent loans and resort to fraud and liar loans to meet the quota. The money would of gone to a better place and we would not of had this run-up like we did.”
One took a shot, “Not sure when it started, but I believe that there was a great acceleration in lender stupidity after 2003. Summer 2003 was when fixed rate mortgage rates hit their nadir, and the only way for prices to continue to appreciate was either wage inflation or lowered lending standards. Well, we haven’t had double digit wage increases.”
Another went further back, “I think it started (just a little bit) in 2001 or before. By 2003, ANYONE who wanted a mortgage could get one.”
The Denver Post….“Colorado’s lenders offer mortgages to people who would never have qualified two decades ago. Two in five Colorado home loans are considered high cost (also known as sub-prime) and we shouldn’t be entirely surprised by the result.”
“Prime, fixed-rate mortgages have a foreclosure rate of about 2.5 percent, fairly consistent with historical trends. But for sub-prime loans, the foreclosure rate is about 8 percent. That’s the cause of our historically high rate of foreclosures.”
“In the aftermath of Sept. 11, interest rates plummeted. Many people got themselves into variable rate mortgages, attracted by the low initial rates, only to see their monthly payments double and sometimes triple in the last few years after rates began to rise again.”
The Napa Valley Register. “Real Estate Broker Chuck Sawday attributed part of the city’s appreciation to interest rate levels. ‘More people were able to buy homes because of low interest rates. That pushed a whole new group of people into buying their own home. Then, the person who just sold moves up,’ adding to more sales, he said.”
“Robin Rose, Coldwell Banker Brokers of the Valley general manager, said new mortgage products and lender competition have also spurred activity. ‘(This) resulted in increased money available for buyers,’ said Rose.”
“Realtor David Barker identified 2001 as a pivotal year for real estate. ‘What really took the market off was after Sept. 11 when the Federal Reserve dropped (interest) rates. That kick-started the housing market. Money was very cheap. It was easier to get a loan.’”
“‘As with any investment there are fluctuations in the market,’ said Rose. ‘So, while sales did decrease, 2006 represented the third-best existing home sale market on record. Remember that 2005 was the record year, so to see a drop off from record levels is not a surprise.’”
