Tighter lending standards lead to millions of 'lost loans'

 
By Lew Sichelman
Posted12/24/2016 8:00 AM

It's no secret than lending standards have been tighter since the Great Recession, which started at the hands of loose underwriting rules. But what's the true economic impact of those stricter standards?

A new paper from the Urban Institute, a bipartisan think tank, quantifies the impact as 6.3 million loans that failed to launch between 2009 and 2015.

                                                                                                                                                                                                                       
 

For example: If borrowers of all credit levels had had the same access to financing in 2015 that they had in 2001, the report says, lenders would have made 1.1 million more loans that year alone than they actually did.

Between 2001 and 2015, the decline in home loans was particularly acute for borrowers with credit scores below 660, which is considered decent these days. For those folks, the number of purchase loans dropped 65 percent, compared to a 20 percent decline in borrowers with scores from 660 to 700 and just 1.4 percent for those with scores above 700.

The "missing mortgages" don't just mean that millions of people were deprived of sharing in the wealth-building that usually comes with ownership, the institute says. It also means there were fewer construction jobs and fewer sales of the goods new owners typically purchase shortly after they move in.

Regulators are taking steps to expand access to credit. Although the rules won't stretch all the way back to how they were 15 years ago, the Urban Institute says that there is still much to be done. Otherwise, the impact of tight credit will reverberate throughout the economy for years to come.

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Faucets of the future

Faucets are no longer simple plumbing fixtures that release hot and cold water in sinks, tubs and showers. These days, they have evolved into decorative centerpieces with innovative features and eco-friendly functionality.

At the big International Builders' Show set for early 2017 in Orlando, for example, Pfister will unveil the newest generations of faucet technology with features and designs that the world has never seen before.

Among the more than 100 new products the 100-year-old company will exhibit include a voice-controlled fixture for hands-free functionality, clear hand-crafted Italian glass faucets and fixtures, and new faucet technology that delivers both tap and filtered water from a single faucet.

Grohe will debut a hands-free faucet operated by a foot control to reduce the spread of germs. And in the bathroom, American Standard will show a self-cleaning toilet. Simply press a button and walk away, the company promises.

                                                                                                                                                                                                                       
 

Back in the kitchen, Whirlpool's innovations department, WLabs, will introduce a small food recycler called the Zera. The device can turn a week's worth of food waste into compost for your plants within a 24-hour period.

According to Whirlpool, the typical family produces some 400 pounds of food waste per year. That stuff comprises roughly 20 percent of space in our landfills, and produces methane, a gas that contributes to global warning.

Housing inventory

The new Trump administration should "incentivize" people to sell their homes, rather than fixate on timeworn policies to boost demand, says housing economist Ralph McLaughlin.

The market doesn't need buyers right now, the chief economist at Trulia explains. There are plenty of those to go around. But there aren't enough houses for sale to satisfy demand, so we'd be better to focus on boosting inventory.

Programs aimed at increasing the pool of buyers will simply lead to price increases, exasperating buyers on a budget, unless there are enough houses on the market to go around, he argues.

To encourage existing owners to sell and homebuilders to build, McLaughlin would reduce capital gains taxes on investors who snapped up single-family houses during the housing recession and increase tax rates on rental income.

"While home sales slowly recover to their pre-recession average, tight inventory continues to plague buyers and hold back growth," McLaughlin says, noting that there was a year-over-year 4.3 percent drop in the number of houses for sale in October. "If home sales are to drive up to their pre-recession levels, we'll need to see inventory continue to pick up, not fall."

Home office needed

The huge jump in telecommuting suggests that homebuilders should show at least one room in their floor plans as a private office.

According to Adam Artunian of John Burns Real Estate Consulting, two out of five new-home shoppers work at home at least one day a week, and one out of four who were born in the '60s and '70s work at home at least three days a week.

Most existing homes were not designed with this trend in mind, though some sellers have turned a bedroom or a living-room corner into a home office. But builders are uniquely able to do so, and that gives them a distinct advantage over resale houses.

The Burns company survey of more than 22,000 new-home shoppers found that a third want a formal office. Surprisingly, more younger buyers prefer a formal office than older ones. Alternatively, 1 in 4 homebuyers prefer an informal office connected to the family living area.

Either way, the majority of buyers said they will pay "a nice premium" for an additional small office area.

Says Artunian: At-home workers "need to escape their noisy children and barking dogs during the day. The opportunity to close the door when on a business call makes a big difference."

• Lew Sichelman has been covering real estate for more than 30 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com.

© 2016, United Feature Syndicate

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