Despite all the claims, mortgage credit is not tight. This basic misperception is prompting calls to “open up the credit box,” which could provide the fuel for another subprime lending boom and bust, warns AEI housing scholar Stephen Oliner.
Claims that housing has not recovered since the financial crisis because credit is tight are everywhere: from Fed Chair Yellen to economists working within and outside the government.
In a piece published today, former Fed economist Stephen Oliner, now an AEI scholar, explains why they are wrong:
[M]ost people with a steady job and an average (or worse) credit score can get a mortgage. Many borrowers taking out home purchase loans these days have less than perfect credit. The federal government has been more than willing to guarantee higher-risk mortgages, and it’s been doing a lot of business with lenders that originate the loans and then pass the credit risk to taxpayers.
[T]he median credit score for borrowers who took out an FHA-guaranteed home purchase loan was 673. About two-thirds of all individuals in the U.S. have a higher credit score than that.
[T]he FHA is already operating, in effect, as a large subprime lender. Extending even riskier mortgages would not turn out well. History shows that prudent underwriting is the only way to ensure a stable housing finance system and sustainable homeownership.
Read his full piece, “The Myth that Mortgage Credit is Really Tight.”
American Enterprise Institute (AEI) resident scholar Stephen Oliner is also the co-director of AEI’s International Center on Housing Risk. He is available for interviews and can be contacted by emailing mediaservices@aei.org or (202.862.5829).
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