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From Too Loose to Too Tight: Mortgage Market ‘Normal’ Again

NEW YORK – It was easy to get a mortgage loan shortly before the Great Recession, only to be followed by ultra-strict requirements that forced many otherwise homebuyers to continue to rent.

However, those draconian mortgage requirements are beginning to erode, and the market is close to something considered almost normal, with an overall reasonable level of risk under which many, but not all, mortgage applicants can be approved.

It’s been more than a decade since mortgages triggered the financial crisis, and now homebuyers with low credit scores or high debt levels, and those lacking traditional employment more easily obtain credit. These loans are no longer called “subprime” or “Alt-A,” as they were pre-recession, however, and have been rebranded as “non-qualified” or “non-QM” because they don’t comply with the Consumer Financial Protection Bureau’s standards for preventing borrowers from taking out loans they can’t afford.

According to Inside Mortgage Finance, the amount of unconventional loans taken out by borrowers in 2018 hit a decade high of $45 billion, and originations are on pace to increase this year as well. Although unconventional loans are largely provided by nonbank mortgage lenders, big banks like JPMorgan Chase & Co., Credit Suisse Group AG, and Citigroup Inc. have also been arranging mortgage bonds backed by unconventional loans.

Inside Mortgage Finance reports that during the first quarter of 2019, about $2.5 billion worth of subprime loans – those with FICO credit scores below 690 – were included in mortgage bonds, which is more than double a year earlier and the highest level since the end of 2007.

Source: Wall Street Journal (08/21/19) Eisen, Ben

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