Logo
Jun 06, 2022

Why Home Loans Today Aren’t What They Were in the Past

Aerial view of neighborhood

In today’s housing market, many are beginning to wonder if we’re returning to the riskier lending habits and borrowing options that led to the housing crash 15 years ago. Let’s ease those concerns.


Several times a year, the Mortgage Bankers Association (MBA) releases an index titled the Mortgage Credit Availability Index (MCAI). According to their website:


“The MCAI provides the only standardized quantitative index that is solely focused on mortgage credit. The MCAI is . . . a summary measure which indicates the availability of mortgage credit at a point in time.”


Basically, the index determines how easy it is to get a mortgage. The higher the index, the more available mortgage credit becomes. Here’s a graph of the MCAI dating back to 2004, when the data first became available:

Lending standards are still under control graph

As the graph shows, the index stood at about 400 in 2004. Mortgage credit became more available as the housing market heated up, and then the index passed 850 in 2006. When the real estate market crashed, so did the MCAI as mortgage money became almost impossible to secure. Thankfully, lending standards have eased somewhat since then, but the index is still low. In April, the index was at 121, which is about one-seventh of what it was in 2006.


Why Did the Index Get out of Control During the Housing Bubble?

The main reason was the availability of loans with extremely weak lending standards. To keep up with demand in 2006, many mortgage lenders offered loans that put little emphasis on the eligibility of the borrower. Lenders were approving loans without always going through a verification process to confirm if the borrower would likely be able to repay the loan.


An example of the relaxed lending standards leading up to the housing crash is the FICO® credit score associated with a loan. What’s a FICO® score? The website myFICO explains:


“A credit score tells lenders about your creditworthiness (how likely you are to pay back a loan based on your credit history). It is calculated using the information in your credit reports. FICO® Scores are the standard for credit scores—used by 90% of top lenders.”


During the housing boom, many mortgages were written for borrowers with a FICO score under 620. While there are still some loan programs that allow for a 620 score, today’s lending standards are much tighter. Lending institutions overall are much more attentive about measuring risk when approving loans. According to the latest Household Debt and Credit Report from the New York Federal Reserve, the median credit score on all mortgage loans originated in the first quarter of 2022 was 776.


The graph below shows the billions of dollars in mortgage money given annually to borrowers with a credit score under 620.

This is nothing like the last time graph

In 2006, buyers with a score under 620 received $376 billion dollars in loans. In 2021, that number was only $80 billion, and it’s only $20 billion in the first quarter of 2022.


Bottom Line

In 2006, lending standards were much more relaxed with little evaluation done to measure a borrower’s potential to repay their loan. Today, standards are tighter, and the risk is reduced for both lenders and borrowers. These are two very different housing markets, and today is nothing like the last time.

You may be interested in:

a boy is sitting on a man 's shoulders looking at a house.
19 Mar, 2024
As the spring market approaches, prospective home sellers are gearing up to showcase their properties in the best possible light. One of the most crucial aspects of attracting potential buyers is curb appeal – the first impression your home makes from the street. Here's your comprehensive guide to preparing your home for the spring market and maximizing its curb appeal:
a little girl in a floral dress is running through a sprinkler.
19 Mar, 2024
Testing a sprinkler system is crucial to ensure proper functionality and efficient irrigation for your lawn and garden. Here's a step-by-step guide on how to test your sprinkler system:
a woman is holding a piggy bank and a sign that says buy rent .
19 Mar, 2024
Stepping into the world of renting your first apartment is an exciting milestone, but it can also be daunting, especially when it comes to figuring out your budget. As a prospective renter who's new to living on your own, establishing a realistic budget is essential for ensuring financial stability and peace of mind. Here's a beginner's guide to help you navigate the process:
a beagle dog is running in the grass with a stick in its mouth .
01 Mar, 2024
Following an annual maintenance routine helps homeowners avoid costly repairs, property damage, and keeps home a happy, healthy, and safe place for family and visitors alike.
a man is piggybacking a woman in a cardboard box
01 Mar, 2024
If you’re in the market for a new home, avoid these 4 homebuying mistakes to optimize your experience and set yourself up for success. How do you know if you’re ready to buy? Ask yourself these questions to find out if you’re ready to be a homeowner.
a man in a suit holds a clipboard while standing next to a woman
01 Mar, 2024
No matter what stage of life you’re in, buying or selling a home is a big decision. When you’ve made big decisions in the past, what have you done? You’ve probably done some research on your own, and then asked for advice and guidance from someone you consider to be extremely knowledgeable. Big decisions lead to big changes and moving is no exception. There are a lot of factors at play when deciding on new living arrangements. You need insights from experts to help you feel confident and make the right choice.
a vase of flowers sits next to a sign that says home
21 Feb, 2024
Whether you’re an avid believer in the prediction of our local groundhog, or just eager to feel the warm sunshine again, you may be dreaming of springtime coming early. While we can’t guarantee it’ll be here quickly, we can all prepare to welcome the warm weather into our lives by preparing our homes with the following items.
a flyer about the benefits of homeownership in condos and townhomes .
21 Feb, 2024
If you’re in the market for a new home, but are having time finding something in your budget, be sure to consider condos and townhomes.
a close up of a computer screen showing a graph
21 Feb, 2024
Are you feeling a bit unsure about what’s really happening with mortgage rates? That might be because you’ve heard headlines that the rate is coming down, but then you read somewhere else that they’re up again. Understandably, it may leave you scratching your head and wondering what’s true.
Show More
Share by: