Tightening mortgage standards counter-productive

by John Wake on June 25, 2007

The Mortgage Curmudgeon, “To prevent one foreclosure by tightening standards, we prevent a larger number of successful loans.”

He is big on pointing out everything wrong with the mortgage industry so I believe him when he says this.

{ 2 comments… read them below or add one }

1 Cbass 06.25.07 at 6:32 pm: According to the Mortgage Professor he is all about helping people navigate the mortgage business. I find that hard to believe.

Firstly I do not advocate government intervention in most any case, but I also do not think most of these “sub prime” borrowers should have been given a loan in the first place either.

Is that not why down payments and good credit used to be a requirement to buy a house in the “old days”???

So, if the banks will not move in their own economic best interest, then release the hounds. I have no problem with new regulations that reward financial prudence. The only people this will hurt are people who are not prepared to own a home in the first place.

If one in a hundred subprime borrowers keep their house, is that a good thing? What about 1/2 of sub prime borrowers?? 51%??? What is the cut off point? Will the benefit to society be greater if a few manage to achieve the dream of home ownership while many more suffer from poor lending practices?
2 John L. Wake - Realtor 06.25.07 at 7:50 pm: Good point!

I wonder how many sub-prime borrowers traditionally default? It’s gotta be higher for mortgages from 2005 and 2006 since there was so much fraud (no doc, fully employed loans). Even then, Clay, I think the default rate will be far, far less than 50%. 10%? I can’t imagine it hitting 20%. Only time will tell.