Lenders Crack Down After Subprime Collapse
The pressure to tighten credit has come from everywhere—insurers, the government, and within lending institutions themselves—but, ultimately, bond holders are driving the trend. "It all starts with the people who are holding [mortgage loans] as an investment," Walters says.
Mortgage brokers, meanwhile, are scrambling to make sense of the fallout. As lenders have quietly adjusted their standards, brokers have rarely been told of the changes and were made aware of them only when a client was rejected for a loan. "You're walking on eggshells trying to get someone in closing," says Miller. "We have to be very careful what we say we can get done. We used to be able to say with certainty."
Members of Congress, such as Senate Banking Committee Chairman Christopher Dodd, have threatened to get involved, and Federal Reserve Chairman Ben Bernanke has lightly nudged lenders to re-evaluate their underwriting practices. Most lenders reject government interference in the loan approval process and are confident that the more volatile companies have already fallen by the wayside. "The market has clearly corrected itself pretty quickly," says Walters. "It has cleaned house in areas where [standards had] gotten too loose."
The ultimate victims of tightening credit standards are the potential borrowers who get left behind when trying to buy homes. While restrictions will exclude those who just aren't ready for homeownership, others sitting on the fence may "get knocked the wrong way," says Savitt. "We have to be very careful," he adds. "It's a balancing act."
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