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Mortgage

Why mortgage lending standards will ease in 2021

Loosening expected despite a projected rise in delinquencies

home sales

Economists and housing experts say mortgage lending standards will likely loosen in 2021, despite the increased risk of delinquencies ahead.

Such a scenario illustrates the growing disparities in the U.S. housing market. As one struggling group of homeowners braces for the end of forbearance and navigates COVID-19-related economic shocks, another segment is better positioned than ever to scoop up properties that become available.

If this happens, it would prove a dramatic contrast to that of the financial crisis, in which lenders tightened credit standards from 2007 through 2010, said Curt Long, National Association of Federally-Insured Credit Unions chief economist and vice president of research.

“Nevertheless, the fact that high-income households have fared so much better than low-income ones over the past year means that there may still be a lack of access to credit for low-income households even if underwriting standards do ease somewhat this year,” Long said.

The speculation about easing credit standards comes on the heels of the Federal Reserve’s latest Senior Loan Officer Opinion Survey on Bank Lending Practices, which concludes that banks began easing lending standards at the end of 2020. The survey also states that banks expect to continue easing standards as risks lessen.

“Major net shares of banks that reported expecting to ease standards cited an expected improvement in credit quality of the loan portfolio and an expected increase in risk tolerance as important reasons for the expected easing in lending standards,” the Fed’s survey said.

As the economy reopens and the COVID-19 vaccine beats back the threat of the virus, economists expect this loosening of credit will only increase consumer demand for loans, including mortgages. Over the pandemic, a record number of U.S. households reduced their debt loads, giving them a better shot at a new mortgage.

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