Dive Brief:
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Ultra-tight qualifications for mortgages have created a “lending drought” that could be relaxed if banks revived subprime mortgage lending, a New York Times columnist writes.
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A New York Times Magazine column by reporter Binyamin Appelbaum quotes financing experts saying that federal rules requiring banks to document that borrowers can repay their loans has all but frozen lending. If banks had followed 2001 standards in 2012, the article says, banks would have made 1.2 million more loans than they did.
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As long as it’s difficult to get mortgages, first-time buyers and older, move-up buyers won’t be spending money to buy homes, the column says.
Dive Insight:
Urban Institute housing finance expert Laurie S. Goodman is quoted in the article saying the tight credit situation is preventing housing from being a driving force in the economic recovery. “Ultimately, it hinders the economy through fewer new-home sales and less spending on furnishings, landscaping, renovations and other consumer spending,” she told Appelbaum.