Are mortgage lenders returning to the risky habits that helped lead to the housing crash? It is an understandable question, especially for anyone who remembers how easy borrowing appeared to be during the housing bubble.
The important comparison is not just whether people can get loans. It is how carefully lenders evaluate the people borrowing the money.
During the bubble, many loans were made with weak lending standards and limited verification of a borrower’s ability to repay. The tighter standards that followed represent a meaningful difference for lenders and borrowers alike.
Two measures help explain that difference: the availability of mortgage credit and the credit scores of borrowers receiving loans. The figures below are historical comparisons, not a description of the market at the moment you read this.
What Mortgage Credit Availability Tells Us
Several times a year, the Mortgage Bankers Association, or MBA, releases the Mortgage Credit Availability Index, commonly called the MCAI.
The MBA describes it as:
“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.”
In plain English, the index measures how easy it is to get a mortgage. A higher index means mortgage credit is more available.
That makes it useful when comparing the lending environment before the housing crash with the more restrictive environment that followed. Rather than relying on memories of easy borrowing, the index gives us a consistent measure to examine.
How Availability Changed Around the Crash
When the historical data first became available, the index stood at about 400. As the housing market heated up before the crash, mortgage credit became more widely available, and the index eventually passed 850.
When the real estate market crashed, the MCAI fell sharply as well. Mortgage money became almost impossible to secure.
Lending standards later eased somewhat from those extremely restrictive conditions. Even so, the later monthly reading cited in the original comparison was just 121, about one-seventh of the pre-crash level.
The sequence matters:
- The index began at about 400 in the earliest available data.
- It passed 850 as credit expanded during the housing bubble.
- It dropped sharply when the market crashed.
- A later reading of 121 showed that credit availability remained far below the bubble-era level.
Those figures describe specific historical observations. They should not be presented as a live reading of mortgage availability. Their value here is in showing the scale of the difference between the periods being compared.
Why Lending Became So Risky During the Bubble
The main reason mortgage credit availability climbed so high was the availability of loans with extremely weak lending standards.
To keep up with demand during the boom, many lenders offered loans that put little emphasis on a borrower’s eligibility. Lenders did not always complete a verification process to confirm whether the borrower would likely be able to repay the loan.
That is the central issue. Making a loan available and carefully evaluating the borrower’s ability to repay it are not the same thing.
The concern was not simply that more people were borrowing. It was that too little attention was being paid to whether they could repay.
When comparing lending environments, keep the focus there. The useful question is how much care goes into evaluating risk before a loan is approved.
What Credit Scores Show About the Difference
Borrower credit scores provide another way to examine lending standards. The original comparison used FICO® scores to illustrate how lending changed after the housing bubble.
The website myFICO explains:
“A credit score tells lenders about your creditworthiness (how likely you are to pay back a loan based on your credit history). It is calculated using the information in your credit reports. FICO® Scores are the standard for credit scores, used by 90% of top lenders.”
During the housing boom, many mortgages were written for borrowers with FICO scores below 620.
Some loan programs still allow a score of 620. However, the tighter lending standards described in the post-bubble comparison reflect greater attention to measuring risk when approving loans.
A Historical Look at Borrower Scores
In the later first-quarter snapshot cited from the New York Federal Reserve’s Household Debt and Credit Report, the median credit score for all mortgage loans originated was 776.
The dollar amount of lending to borrowers with scores below 620 also showed a substantial difference:
- During the pre-crash boom, borrowers with scores below 620 received $376 billion in mortgage loans over a full year.
- In the later full-year comparison, that amount was $80 billion.
- In the first quarter following that later year, the amount was $20 billion.
Keep the reporting periods straight. The $376 billion and $80 billion figures cover full years. The $20 billion figure covers only one quarter, not a full year.
These are historical figures, not current totals. Together with the credit availability index, they support the original distinction between bubble-era lending and the tighter lending environment used for comparison.
What This Means for Your Mortgage Conversation
The practical takeaway is to focus on the evaluation behind a loan, not simply whether borrowing sounds easy.
If you are considering a home loan, use that distinction to guide your questions:
- How will my ability to repay be evaluated?
- What information will need to be verified?
- How does my credit history fit the loan options we are discussing?
- What should I review before moving forward?
These questions keep the conversation centered on your situation rather than a broad comparison with the housing crash.
The Bottom Line
During the housing bubble, lending standards were much more relaxed, with little evaluation in many cases of a borrower’s potential to repay. The tighter standards in the later comparison reduced risk for both lenders and borrowers.
These were two very different lending environments. The historical evidence does not support treating them as the same.
Your next step is straightforward: write down your questions about credit, verification and repayment, then reach out to Ed Parcaut to discuss your situation and what to review before pursuing a mortgage.
