by Holden Lewis as published on


Let’s start with a factoid about homebuyers who get mortgages: When lending standards were lax in the 2nd quarter of 2005, 39% of homebuyers had credit scores of 740 or higher. In this year’s 2nd quarter, 67% did.

Today’s mortgage borrowers are much more creditworthy than buyers in the most frantic days of the housing boom. That’s a good thing, right?

Not really, writes housing analyst Laurie Goodman of the Urban Institute, in an essay called “Squeaky-clean loans lead to near-zero borrower defaults — and that is not a good thing.”

“A near-zero default environment is clear evidence that we need to open up the credit box and lend to borrowers with less-than-perfect credit,” Goodman writes.

Wait, what?

That pop-pop-pop you hear in the distance is the sound of people’s minds being blown as they read that. Isn’t the goal to create loans that never have late mortgage payments, with zero foreclosures? No: That would be like enforcing a 30 mph speed limit on highways to eliminate fatal accidents. We’re willing to accept thousands of deaths in exchange for convenience and freedom. (This is my analogy, not Goodman’s.)

Goodman isn’t arguing that we need to return to the days when you could qualify for a loan if your breath could fog a mirror. She’s saying that society would fare just fine if more people with less-than-stellar credit could qualify for mortgages. Even if more of those loans end up delinquent and in foreclosure.

According to the Mortgage Bankers Association, lenders spent about 1 hour on each mortgage application in 2002. In 2015, lenders spent 5 hours on each application because of stricter regulations and skittish investors. Here’s the kicker: mortgages originated in 2002 performed well; lending standards didn’t get sloppy until 2004.

Of the mortgages made between 2011 and the 2nd quarter of 2015, just 0.18% have defaulted, according to Fannie Mae. In the relatively responsible lending years of 1999 to 2003, 0.79% of mortgages defaulted within 5 years. That rate was 4 times higher, but it still was less than 1%.

“Our analysis suggests that given this environment of meticulous underwriting, borrowers with lower credit scores may well perform better than their counterparts performed in the past,” Goodman concludes. “Put simply, it’s time to lend again to borrowers with less-than-perfect credit.”

Millennials are bullish on housing

There’s a stereotype that millennials are skeptical of homeownership because they saw their elders suffer after the 2008 economic meltdown. But millennials have more enthusiasm for homeownership than baby boomers have. That’s according to a survey commissioned by ValueInsured, a company that sells down payment protection.