One of the biggest impediments to a more robust recovery in the housing market, and indeed, the broader economy, is that it has been very difficult for many consumers to actually obtain a home loan even if they had the desire and cash on hand to make a purchase.
It's understandable why mortgage lenders made it so difficult for people to obtain purchase loans when the recession first hit. A huge wave of delinquency and default swept across the country, the vast majority of which were on mortgages extended to subprime borrowers in the first place. Now, it's reasonable to argue that lenders went over the top in terms of how tight they made those restrictions.
What's the situation today?
Indeed, many financial institutions will now say that they've made strides to reduce the restrictions they'd held in place for a period of years, but these were often marginal at best, and typically only applied to loans for consumers buying houses that cost far more than the national average. Indeed, these "jumbo" loans have often been the only areas in which lenders cut restrictions.
As a consequence, data continues to suggest that it is still as much as eight times harder to obtain a mortgage now than it was prior to the economic downturn. Of course, that was when home loans were demonstrably too easy to get, so no one wants the market to go back to carrying that kind of risk. However, the fact is that there may be a fair middle ground between what lenders have put in place and held there for years as a direct reaction to their previous too-loose standards. Making that change could unlock borrowing opportunities for millions of Americans.
Will subprime lending return?
On the one hand, it's fairly easy to say that lenders were so stung by subprime mortgages prior to the downturn that there's no way they would return to offering these types of loans. However, that might not actually end up being the case. A lot of it depends, though, on how those with more average credit scores are able to handle their business when it comes to these issues. That is to say, if those people can keep their rates of delinquency and default below historical averages, lenders might be a little more willing to dip their toes back into the waters of subprime lending, en masse.
But overall, it's likely that this type of change is a long ways away. The fact of the matter is that if lenders aren't even letting people with average credit ratings get into the market too often these days, there's probably not much hope for those with even lower scores to take advantage of current affordability any time soon.
However, that doesn't mean consumers shouldn't strive to improve their ratings, nor does it mean they are completely shut out of the market. They'll just have to work a little harder to achieve their goals of homeownership.