TheMReport — News and strategies for the evolving mortgage marketplace.
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COVER STORY The Future of Lending: Credit & Today's Consumer Standards in the mortgage marketplace are shifting, leaving borrowers and lenders struggling to thrive in the present and prepare for the future. By Adam Weinstein H appy days are here again! Right? . . . According to most of the key economic indicators, they should be: Unemployment is down! Demand for most consumer credit is up! Houses are cheap, and so is lending! "You have mortgage rates, 30-year fixed, under 4 percent," says Jona- than Miller, CEO of the Manhattan-based residential real estate appraiser Miller Samuel Inc. "You have housing prices 33 percent off of peak levels" from 2006—more than they fell during the Great Depression. But despite all this good news, demand for new mortgages is relatively flat, and leading analysts don't see an end to that anytime soon. It should be a home-lending boom time, but it isn't. The reason, Miller says, is simple: "It's hard to get a mortgage." Ah, yes, lending standards. Burned by bad paper after the bubble burst in 2006, lenders—and regulators, and politicians—scampered to raise the bar for creditworthiness. Applicants for prime mortgages had to meet new down payment and credit score requirements, plus overlays, plus paperwork . . . and few found it worthwhile to do so, either daunted by banks' demands and option ARM horror stories, or discouraged by ever-plummeting house prices. How much has lending tightened, and where's it headed? Where's the new normal we keep hearing about? And with jobs and growth returning to 22 | THE M REPORT the economy in earnest, what the heck has to happen before folks demand residential loans again? MReport has pored over the latest studies and enlisted the aid of some leading industry experts to gauge the future of lending, and what we found was guarded optimism. Credit standards have tightened, it's true; we're not likely to see the freewheelin' days of the mid-oughts again anytime soon. But in the big scheme of things, it's still compara- tively easy to get a loan. So what gives? In a nutshell, we learned that consumers are just spooked, and with good reason. Banks, too, are