The Obama Administration is encouraging lenders to make home loans a little bit easier, a move that causes both hope and dread. We are filled with hope for potential buyers to again be able to qualify for loans, yet the dread comes from the fact that loose lending standards are credited for a major part of the housing crisis.
From 2007 to 2012, new-home purchases dropped 30 percent for buyers with credit scores above 780, the Federal Reserve reports. But the drop was even more pronounced for borrowers with credit scores between 620 and 680 — falling about 90 percent. Credit scores between 680 and 620 (out of 800) were once considered a “respectable range” for a credit score when applying for a mortgage,The Washington Post reports.
“If the only people who can get a loan have near-perfect credit and are putting down 25 percent, you’re leaving out of the market an entire population of creditworthy folks, which constrains demand and slows the recovery,” says Jim Parrot, the former senior adviser on housing for the White House’s National Economic Council.
It does make sense to ease some of the restrictions for people who do have good credit and do have a good job history, but don’t get too comfortable handing out loans willie-nillie like before!
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