The Coming Crisis in Credit Availability

Abstract

Credit availability was too loose in the 2005–early 2007 period. Borrowers were able to buy homes with low (or no) down payments and very little documentation of income and assets. In an over-reaction, credit availability is now too tight; it is increasingly difficult for borrowers who are “outside the credit box” to qualify for a mortgage, as the authors quantify with their Credit Availability Index. The authors’ concern is that the new regulatory actions, many of which are spawned by Dodd–Frank, have the potential to make credit even tighter. They focus on the Qualified Mortgage (QM) Rule, the Qualified Residential Mortgage (QRM) Rule, the High Cost Mortgage Rules (HOEPA) and “disparate impact.” They believe the interaction among these rules is being ignored, as different regulatory agencies preside over each one.