It's Not Just Rates. Getting A Mortgage Today Is Historically Difficult.

In the intricate world of real estate and finance, access to mortgage credit is a vital factor that can shape the dreams of homeownership for countless individuals. However, this access is far from static; it ebbs and flows in response to a complex interplay of economic, regulatory, and market forces. At this current time, for us in the industry (Mortgage Loan Officers and Real Estate Agents) it seems harder than it used to be (and harder than it should be) to get a mortgage loan from start to finish. But is it truly more difficult or are we just biased against a tough market? We looked at the data and can confirm that we are right.

Let's start by looking at the Mortgage Credit Availability Index graph below:

The graph above shows us that the index is as low as it has been since roughly the middle of 2012, right in the thick of coming out of the Housing-Market-Driven financial crisis. So this graph would tell us that, yes, underwriting is more difficult right now.

We can look at another graph, below, for a different perspective:

The graph above shows the default risk that has been taken across all channels, from the Government Sponsored Enterprises (GSE’s) like Fannie Mae and Freddie Mac, and the lenders themselves. We see that default risk has been down from what the Urban Institute calls “Reasonable Lending Standards” since 2008. And heading into the early part of 2023 it was headed to it’s very lowest levels. Many assume that the goal is to get to a 0% default rate, but that is incorrect. In order to maintain a healthy housing market there must be a certain level of default risk taken in order to allow the widest possible variety of buyers/borrowers access to credit. There needs to be a balance between default risk and access. When too little risk is taken the effects ripple out through every part of the lending industry, and it makes its way into the underwriting conditions that we all feel on our own applications.

What drives this access to credit and the levels of default risk the GSE’s, and the lenders themselves are willing to take? There are a variety of factors such as:

Economic Conditions

The state of the economy plays a pivotal role in determining how lenders approach mortgage lending. During periods of economic uncertainty or recession, lenders often tighten their underwriting standards. The fear of increased default rates leads them to be more cautious, making it tougher for some borrowers to secure a loan.

Regulatory Changes

The financial landscape is ever-evolving, with regulations that govern lending practices continually being refined. Regulatory adjustments can impact lenders' willingness to extend credit. Stringent regulations might lead lenders to be more conservative, whereas relaxed regulations could encourage broader credit access.

Interest Rates

Mortgage interest rates are a powerful factor that influences borrower demand. When rates are low, the demand for mortgages tends to rise, prompting lenders to adapt their lending criteria. Conversely, when rates climb, demand may decrease, allowing lenders to relax their standards. ***With rates near their highest levels in 20 years we can assume this is not the factor affecting today’s access to credit***

Housing Market Conditions

The health of the housing market greatly influences lenders' confidence. During robust housing markets, lenders might ease credit requirements due to lower perceived risks. In contrast, during market downturns, they could become more cautious, fearing potential declines in property values.

Government Policies

Initiatives from government entities, such as the GSEs, can have a profound impact on mortgage credit access. Government programs aimed at assisting low-income or first-time homebuyers can expand access, while policy changes might have the opposite effect.

In conclusion, access to mortgage credit is a dynamic phenomenon subject to constant change. Understanding the intricate factors at play - economic shifts, regulations, interest rates, housing market dynamics, and government interventions - is crucial for both aspiring homeowners and industry stakeholders.

By staying informed about these fluctuations, individuals can better navigate the evolving landscape of mortgage credit accessibility.

The good news is that working with a dedicated mortgage professional is still the best path to getting your loan approved quickly and painlessly.