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Before the housing crisis, borrowers could get a mortgage loan with little to no problems. Mortgage credit began to tighten when the crisis hit and has remained that way since.
An Urban Institute report found that between 2009 and 2014, 5.2 million borrowers with less-than-pristine credit were unable to get a mortgage loan due to tight lending.
The data showed that between 2009 and 2013, 4 million loans could have been originated if credit standards were like 2001's levels. On top of this total, an additional 1.2 million borrowers were unable to get a mortgage loan.
"A tight credit box means that fewer families will become homeowners at an opportune point in the housing market cycle, depriving them of a critical wealth-building opportunity," Urban Institute said. "It slows the housing market recovery by limiting the pool of potential borrowers. Ultimately, excessively tight credit hinders the economy, as it slows all the associated economic activity that comes with home buying, such as furniture purchases, landscaping, and renovations."
Urban Institute said that lender overlays due to repurchase risk, high costs of servicing delinquent loans, fears of litigation by the Department of Justice, the HUD Inspector General, or State Attorneys General could all be contributing factors for the tight credit box.
According to the report, purchase mortgages fell 33 percent from 4.65 million in 2001 to 3.1 million in 2014, showing the drop in new and existing home sales.
"While some progress has been made, the new missing loans estimate makes it clear that we need to increase efforts to expand the credit box," the report noted. "Policymakers should resolve the uncertainly surrounding agency repurchases, evaluate why the costs of servicing delinquent loans are so high and reassure lenders that costly litigation does not lie behind every default. Broadening lending standards is critical for cultivating and sustaining a more robust recovery in the housing and mortgage markets and, ultimately, the entire economy."
