“I’ve been surprised that housing hasn’t recovered more robustly than it has. In part, I think it reflects very tight credit … for any borrower that doesn’t have really pristine credit …” (Fed Chair Janet Yellen, FOMC Press Conference, December 17, 2014)The claim that mortgage credit is very tight for all but pristine borrowers has been repeated so often by respected policymakers and economists that it is now taken as fact. When Janet Yellen says that mortgage credit is hard to come by – as she did at all of her FOMC press conferences last year – people listen. The drumbeat about tight mortgage credit has continued this year, with commentary to that effect in the Fed’s Monetary Policy Report to Congress and the Administration’s Economic Report of the President. Economists outside the government regularly offer the same assessment.This characterization of today’s mortgage market, however, is misleading. The truth is that most people with a steady job and an average (or worse) credit score can get a mortgage. Many borrowers taking out home purchase loans these days have less than perfect credit. The federal government has been more than willing to guarantee higher-risk mortgages, and it’s been doing a lot of business with lenders that originate the loans and then pass the credit risk to taxpayers.Since the financial crisis, the federal government has nearly monopolized home mortgage lending in the United States. Even now, more than six years after the crisis began, 80 percent of the mortgage loans originated to purchase homes have a federal government guarantee. That’s an astounding statistic in a supposedly free-market economy like the United States. The upshot is that the standards imposed by the various guarantee programs largely determine the availability of mortgage credit.
The Myth That Mortgage Credit Is Really Tight
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