Underwriting Crisis: Way Too Tight Credit

If ever there was a conundrum to improving housing values it’s the riddle of underwriting. Few will disagree that during the housing boom lenders such as Ameriquest and New Century would fund almost any type of mortgage as long as the borrower was still breathing. (And Wall Street would securitize those loans with no questions asked.) But today, almost any lender will agree that loan standards in the secondary market are much too tight — and talk of a 20% downpayment test for a ‘qualified residential mortgage’ (and to hell with mortgage insurance) is sending shivers through the business. If private lenders move in to fill the GSE void and fund non-QRM loans what type of rates will they charge? Many Republicans and several Democrats are cheering on this currently non-existent market, believing that it will easily fill the void. But many of these politicians live in an isolated world where affording a monthly payment is never an issue. Quick question: how many elected members of Congress and the Senate have been foreclosed on during the housing downturn? If you have any names, please send them my way. Of course, no one is saying that mortgage bankers and the GSEs should return to the days of too-easy credit, but certainly some type of compromise needs to be reached between the old (reasonable) days (pre-2001) and current times. The key to a robust economy is an improving housing market — and "reasonable" underwriting standards...