Some people are anxious that mortgage credit lending will become stricter as recession talk gets more common. This generally occurs during a recession, but since there hasn’t been a credit boom from 2008 to 2022, the idea that credit lending in America will collapse as it did from 2005 to 2008 is false. The financing available to support that loan boom collapsed, one of the main reasons home sales fell off after reaching their high in 2005. Could this mean credit will be tightened similarly when the next recession occurs? No, not a chance is the brevity of the answer.

Let’s examine the credit availability index for the years 2020 to 2022. When a recession strikes, credit should become more restrictive. After COVID-19, this did happen in the mortgage business, which was completely typical. During COVID-19, we noticed a drop in the availability of loans and certain non-QM lenders ceasing operations. Some lenders did tighten their credit rules, but it didn’t stick around for very long.

This indicator was headed toward 900 during the housing credit bubble but fell below 100; that is a major freaking change, people. Why was it the case? Because the exotic loan debt arrangements used during the housing bubble era were being removed from the market as lenders themselves went out of business. Credit was rapidly deflating because the economic model of lending based on complex loan debt structures was disappearing. It’s not surprising that most consumers didn’t require forbearance during this time because the loan profiles of American households looked excellent. To read more about the position of mortgage lending and forecasts on mortgage lending in the next recession as a lender to better position your business, click here.

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