“The MCAI provides the only standardized quantitative index that is solely focused on mortgage credit. The MCAI is . . . a summary measure which indicates the availability of mortgage credit at a point in time.”Basically, the index determines how easy it is to get a mortgage. Take a look at the graph below of the MCAI since they started keeping track of this data in 2004. It shows how lending standards have changed over time. It works like this:
- When lending standards are less strict, it’s easier to get a mortgage, and the index (the green line in the graph) is higher.
- When lending standards are stricter, it’s harder to get a mortgage, and the line representing the index is lower.
Loose Lending Standards Contributed to the Housing BubbleOne of the main factors that contributed to the housing bubble was that lending standards were a lot less strict back then. Realtor.com explains it like this:
“In the early 2000s, it wasn’t exactly hard to snag a home mortgage. . . . plenty of mortgages were doled out to people who lied about their incomes and employment, and couldn’t actually afford homeownership.”The tall peak in the graph above indicates that leading up to the housing crisis, it was much easier to get credit, and the requirements for getting a loan were far from strict. Back then, credit was widely
Today’s Loans Are Much Tougher To Get than BeforeAs mentioned, lending standards have changed a lot since then. Bankrate describes the difference:
“Today, lenders impose tough standards on borrowers – and those who are getting a mortgage overwhelmingly have excellent credit.”If you look back at the graph, you’ll notice after the peak around the time of the housing crash, the line representing the index went down dramatically and has stayed low since. In fact, the line is far below where standards were even in 2004 – and it’s getting lower. Joel Kan, VP and Deputy Chief Economist at MBA, provides the most recent update from May:
“Mortgage credit availability decreased for the third consecutive month . . . With the decline in availability, the MCAI is now at its lowest level since January 2013.”The decreasing index suggests standards are getting much tougher – which makes it clear we’re far away from the extreme lending practices that contributed to the crash.