Why Home Loans Today Aren’t What They Were in the Past
Several times a year, the Mortgage Bankers Association (MBA) releases an index titled the Mortgage Credit Availability Index (MCAI). According to their website:
“The MCAI provides the only standardized quantitative index that is solely focused on mortgage credit. The MCAI is . . . a summary measure which indicates the availability of mortgage credit at a point in time.”
Basically, the index determines how easy it is to get a mortgage. The higher the index, the more available mortgage credit becomes. Mortgage credit became more available as the housing market heated up, and then the index passed 850 in 2006. In April, the index was at 121, which is about one-seventh of what it was in 2006.
The main reason was the availability of loans with extremely weak lending standards. Lenders were approving loans without always going through a verification process to confirm if the borrower would likely be able to repay the loan.
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. While there are still some loan programs that allow for a 620 score, today’s lending standards are much tighter. These are two very different housing markets, and today is nothing like the last time.
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