Do Mortgage Bankers Want More Mortgages? One Guess.

Photograph by Patrick T. Fallon/Bloomberg

New homes in Riverside County, Calif., once the buckle of California’s foreclosure belt.

Checking in on the U.S. housing market is a favorite pastime for this blog, and not just for professional reasons. Since the TMN family owns our home, in a market (New York City’s borough of Brooklyn) where prices have escalated dramatically, watching the numbers go up is a pleasant experience. This writer has plenty of reason to hope that prices will keep rising forever.

Which still doesn’t prevent TMN from raising a skeptical eyebrow on hearing that if only credit standards were again loosened, things would be even better. That is essentially the message from Lewis Ranieri , the pioneer of the mortgage bond market. Ranieri today the decried how the “irrational restriction” on credit threatens profound (his word) economic consequences by denying mortgage loans to minority groups, women, and newly married couples.

Below is a chart of the S&P Case-Shiller home price index , stretching back to the beginning of 2000. You’ll note a major ascent through 2006, culminating in a crash. You’ll also see that since 2012 (a bottom that Ranieri called) prices have again risen quickly. They’re now back at the levels of 2004, two years before the end of the run-up. So if credit terms have been tightened they have not kept the price of housing from rising well above historic norms.

So here’s the bottom line: If you believe that the peak of 2006 was just where home prices should be, then you may think that tighter credit standards are indeed keeping those who most need to buy homes out of a historic opportunity. If, on the other hand, you think that a loosening of credit standards created a housing bubble, then you may not think it’s a great idea to go back to that model. And you might even worry that the people who “benefit” from loose standards at the top of the market  turn out to be the ones stuck with underwater mortgages later.

Either of these may be true. TMN is not dogmatic. But it does seem relevant that Ranieri’s speech today was to a group of mortgage bankers–folks whose interest in increased mortgage lending may not be entirely academic.


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