Some experts believe that a slight rate hike may actually increase lending by loosening credit standards (Rate Hike). They believe the higher rates will entice lenders to make it a little easier for people to get mortgages.
Is that because the higher rates may restrict some at the lower end of the scale from affording a home? So, in turn, lenders will need to ease their credit standards to qualify more applicants? Otherwise, business and the so-called housing recovery may suffer.
Kind of like a dog chasing its tail. As rates increase, fewer people can afford homes. This means fewer homes are sold, meaning less business for Realtors and lenders. So, lenders ease credit standards so those affected by the increased rate and cost can then qualify to buy a home. That way, the housing and lending markets continue to improve, improving the economy, resulting in rates continuing to rise. So, lenders ease their credit standards to qualify more borrowers and…you get the picture.
Where does it stop? Hopefully, not in a repeat of 2008. Been there, done that, and don’t want to do it again.
I wish I had the answer, but I don’t know how to get that perfect balance of rates, returns, opportunity and results. Seems to me, by the shape of things, I’m not alone.
One thing I do know; since the 2008 crash, from a loan quality and performance perspective, things have gotten better. According to Laurie Goodman, of the Urban Institute, the chances of a loan going 90 days past-due is just over 5% today as compared to about 12% in 2001. That’s a good thing.
All we need to do is find a way to continue to make good quality loans, to qualified consumers who can continue to make the payments and maintain their home. Rates will play a small role in that process.
If rates get so high that people can’t afford to qualify for a mortgage to buy a home, home prices and rates may again decline so more people can afford homes. It’s the basic rules of supply and demand.
If lenders decide to ease their credit standards to make more loans, they need to make sure the quality continues and the consumers have the ability to repay the loans. Not just because of the law but because we saw what happened when things got out of hand.
Mortgage lending is an awesome responsibility. Lenders like to say that housing drives the economy and lending drives housing. If that’s true, then we need to keep our eyes on the road and look very carefully ahead so we know where we are driving.