With all the attention being paid to TRID compliance and changes, it seems that lenders have loosened some their credit standards in some areas to help make more loans. Maybe, this is the result of more independent mortgage bankers doing more FHA lending.
Whatever it is, Equifax recently reported that loans made to consumers with an Equifax Risk Score of 620 or below increased by about 28% in the first 10 months on 2015. Let me repeat, “More lending to borrowers with a marginal credit history.”
Is this because it is becoming more difficult to qualify home buyers for loans or because better credit information is allowing lenders to become more comfortable making these loans? Maybe it’s a combination of both. Either way, it’s good for home buyers, good for housing and good for lenders.
But, I would be remiss if I didn’t get on my soap box and preach a little about the dangers lurking in the shadows.
Expanding the credit buckets means expanding the risks, expanding the risks could result in future defaults and future defaults could have this all come tumbling down around us. We can’t let that happen.
Making quality loans is as important as ever. Sacrificing quality for quantity is never a good idea.
If we lower the credit standards; then it is important to carefully analyze all other factors to ensure the consumer’s ability to repay. Not just for the legal protections, but to ensure loan performance which is the foundation for the success of the programs used for this lending.
There are no shortcuts to success. It’s a long hard road wrought with potholes to hinder the process and potentially derail positive results.
Stay on track. Ensure good quality, compliant loans to consumers who have the ability to afford and maintain their home.
Analyze all loans being made to identify problems and defects so these may be corrected before loans close. The pre-closing analysis is what will ultimately ensure quality loan manufacturing and pay the big dividends.
Let’s keep the recovery rolling. Lend responsibly my friends.