Washington, DC-based think tank Urban Institute released a study this week, saying in there that four million home loans would have been approved between 2009 and 2013, had lenders adhered to the same lending standards that were used in the mortgage space in 2001.
“Borrowers with anything less than pristine credit have a hard time getting a mortgage today,” said the Urban Institute in a statement. “Mortgage credit is much tighter than it was at the peak of the housing bubble in 2005 and 2006, as is both expected and appropriate.. ..Today’s lenders are simply not originating loans for borrowers with less than perfect credit.”
Urban Institute said in its report that there would have been 1.25 million loans approved in 2013 had the “cautious” standards of 2001, and not the “severe” standards of 2013 been implemented by financial institutions. The number of loans “lost” by the mortgage space had increased from 0.50 percent to 1.25 percent over the four-year timeframe of 2009 to 2013, redounding to a total of over 4 million missing loans during those five years on record.
Further, Urban Institute revealed that minorities – African-Americans and Hispanics, in particular – were the most severely affected by 2009 to 2013’s tougher lending standards. With standards categorized as “severe” in 2013, lending figures for blacks and Hispanics had declined 50 percent and 38 percent respectively, as compared to 2001. Conversely, the switchover to severe standards had no effect on lending to Asian families, while lending was down by 31 percent for Caucasian families.
The Urban Institute also studied FICO scores (“credit scores” in less formal terms), as only 40 percent of purchase loan borrowers in 2013 had FICO scores of below 720. Twelve years prior, more than half of consumers had a FICO of less than 720.
The report noted that lenders made credit standards stricter due to concern that consumers would not be able to repay their loans, as well as the fact that financial institutions, including some of the United States’ biggest banks, were chased over billions of dollars in mortgages that soured during the global economic crisis of the late 2000s.