Lax Lending Standards Feed Critical Mass

From Realty Times:

Easy Mortgage Money Gets Even Easier

As interest rates rise, as homes get more expensive and as more and more buyers seek high-leverage, higher-risk mortgages, instead of tightening credit, lenders are taking steps to keep the easy money easy.

Federal regulators now fear that lenders are attempting to maintain profit levels by easing lending standards at a time when they should be tightening them.
The practices threaten borrowers with the potential for defaults on loans they couldn't really afford and, if too many borrowers default, lenders could also face collapse, according to John M. Reich, director of the Office of Thrift Supervision, speaking recently before the New York Bankers Association.
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"I am concerned that there has been an overall slippage in underwriting due to increased competition in certain markets segments and areas. Specifically, my examiners have noted examples where loan pricing misaligns with credit risk solely due to competition and the desire for loan volume. We are also seeing an increased liberalization of terms by some institutions in order to maintain their loan volume. This is particularly troubling as institutions are effectively taking on greater risks with less vigilance regarding their overall program requirements," Reich said.
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To that end Reich said regulatory examiners are now "digging deeper" into loan portfolios to learn the level of risk lenders are facing. Examiners will scrutinize loan documentation, pricing, loan-to-value ratios, and overall underwriting standards.

Caveat Emptor,
Grim