Mortgages have gradually become more available to consumers since the spring of 2012, according to data from the Mortgage Bankers Association (MBA). As lenders loosen up on loan requirements, how loose is too loose?

During the most recent home-buying boom, homeownership rates in the U.S. reached 69.2 percent in June 2004. The residential foreclosure avalanche that followed is generally seen as evidence that credit was too easily available in the preceding years.

As of Jan. 28, 2016, the U.S. homeownership rate was 63.8 percent, according to the U.S. Census Bureau, and the MBA’s chief economist and senior vice president Mike Fratantoni said that’s about where it ought to be.

“If you look from the 1960s to the 90s, we were somewhere in the 64 [percent to] 65 percent range,” Fratantoni said. “That’s an equilibrium of a sort that the economy returned to from time to time. If you look over the next decade, our population is aging. Our best guess is that we’ll wind up in that range over the next decade.”

Jonathan Smoke, chief economist for Realtor.com, said that on the spectrum of mortgage credit availability, the current market is much closer to credit being too tight than too loose, and that the homeownership rate is only one measurement of credit availability.

“There are several ways to look at it,” Smoke said. “A good measure is to look at the [MBA’s] Mortgage Credit Availability Index. That number shows we have seen some gradual improvements since the market was even tighter.”

On that index, a score of 100 is where the market was in 2012. At the height of the market in June 2006, the MCAI scored an 859. Today, the number is 124.

“You have to have above-average credit to get a mortgage today,” Smoke said. “Lenders are not lending to people who just meet the minimum requirements anymore. They’re far more conservative because they don’t want to have to buy back a mortgage.”

Another way to look at it, he said, is that there is the “near-absence of private money in the market today,” compared to the boom years.

“There’s no evidence of widespread speculative activity going on,” he said. “Also, the credit quality is some of the best mortgages that have been underwritten as far back as people have data. The industry and country has learned its lesson.”

Fratantoni said that even with the recent easing of mortgage requirements, the current market bears no resemblance to the pre-crisis, high-risk lending market.

“Compare what’s available today to the huge number of products that were available pre-crisis,” Fratantoni said. “The product space is still very tight, particularly in a purchase market. During the boom, there were a lot of no-documentation loans being done. Those programs are completely gone now.”

Clarity And Confidence

Fratantoni thinks lenders would have the confidence to lend more money if they knew exactly what the secondary market is looking for.

“In terms of the mortgage industry, what we’re focused on is getting more clarity in the secondary market,” Fratantoni said. “We’ve made progress with Fannie Mae and Freddie Mac as to what they’re looking for. In the absence of clarity, if the loan goes bad, the lender is more likely to face legal action or be asked to repurchase the loan. There’s a similar concern with the FHA. The result is lenders pull back from the full extent of their credit offerings.”

Smoke agreed that clarity and confidence is what the market needs to increase availability.

“The segment of the market that’s the tightest is the conventional mortgages backed by Fannie Mae and Freddie Mac,” Smoke said. “If they felt certain that they would be faced with legal action or be forced to buy back a mortgage over small errors, we would likely see average credit scores coming down on their loans. The average person has a FICO score of 695. Their average customer is in the mid- to high 700s.”

Changes may be coming, however; the Consumer Fraud Protection Bureau has written opinion letters intended to support innovative new loan products that would further increase the availability of credit.

“That’s promising, in theory,” Benjamin Giumarra, a regulatory consultant for the banking industry with Spillane Consulting Assoc. in Braintree, wrote in an email to Banker & Tradesman. “But it remains to be seen whether they’re really willing to do that in a way that allows lenders to feel safe,” adding that the protracted period of very low mortgage interest rates has also been a bit of a disincentive to get more creative.

“Most lenders certainly have some good options,” Giumarra wrote, “but the ability to repay regulations make it difficult to be very innovative, as there is no history of success that would support the underwriting standards as sound.”

Lenders always have options to extend credit to people who need and qualify for it, he said.

“With the efforts and support of organizations such as MassHousing Finance Agency, lenders have easy access to products that can safely ensure access to credit for borrowers that should get it,” Giumarra wrote.

Proceeding With Caution

Making credit more available to consumers is a positive response after the Dodd-Frank Act overtightened regulations, an example of the pendulum returning to the middle position, said Annie Blatz, manager of the Brewster, South Yarmouth and Yarmouth offices of Kinlin Grover real estate and 2016 president of the Massachusetts Association of Realtors.

“I don’t think we’ll ever see what happened in the past again,” Blatz said. “This is a normal adjustment to make credit more available.”

According to a recent survey by the National Association of Realtors, buyers in the Bay State understand the mortgage process – and its intricacies and challenges – better than buyers in other parts of the country.

“People have an expectation that it’s not as easy to borrow money as it used to be and they understand why,” Blatz said. “I’m happy they have relaxed things a little bit, but I think they should make any changes very cautiously.”

Smoke agreed, saying he thinks “people are very cognizant of not repeating the mistakes of the past. If you look at the criteria that it takes to get one of those low-down payment loans today, they expect you to have a much better credit score or source of income.”

He is encouraged by the FHA’s recent announcement to loosen requirements for loans on condos, which should improve access to more first-time homebuyers.

And, he added, the Fed’s recent move on rates will help considerably, as it will allow lenders to earn more on the loans they make.