In today’s housing market, many are beginning to wonder if we’re returning to the riskier lending habits and borrowing options that led to the housing crash 15 years ago. Several times a year, the Mortgage Bankers Association (MBA) releases an index titled the Mortgage Credit Availability Index (MCAI). The MCAI is a summary measure that indicates the availability of mortgage credit at a point in time. When the real estate market crashed, so did the MCAI as mortgage money became almost impossible to secure. Thankfully, lending standards have eased somewhat since then, but the index is still low. The main reason was the availability of loans with extremely weak lending standards. To keep up with demand in 2006, many mortgage lenders offered loans that put little emphasis on the eligibility of the borrower.
An example of the relaxed lending standards leading up to the housing crash is the FICO® credit score associated with a loan.
During the housing boom, many mortgages were written for borrowers with a FICO score under 620. According to the latest Household Debt and Credit Report from the New York Federal Reserve, the median credit score on all mortgage loans originated in the first quarter of 2022 was 776. In 2006, lending standards were much more relaxed with little evaluation done to measure a borrower’s potential to repay their loan. These are two very different housing markets, and today is nothing like the last time.