The most effective solution for promoting growth and getting the housing market moving may rest with the banks.
Residential mortgages originated in the past 2 years are among the best performing ever. They have the lowest default rates in decades, with 1.2 defaults per 100. As recently as 2007 those figures were 28.7 respectively says Fannie Mae and Freddie Mac. You would think the banks would be eager to start lending again but in fact they are holding back. The banks have tightened underwriting so much even households with solid credit backgrounds are simply not making the cut.
Now I’m not advocating the return of risky lending, but just returning to underwriting standards that are considered to be historically normal. When the banks set such tight guidelines, it takes what one would consider to be a good buyer out of the market and in order to see a strong recovery we need all the help we can get from the banks; do you agree?
I’m eager to hear your thoughts. Feel free to post your comments here…