The Wall Street Journal reported yesterday that the number of new mortgages fell 10 percent last year, hitting a new low not seen since 1995. Much of the decline is due to the more stringent lending standards banks have used since 2007:
Banks have become much more cautious about making loans since the housing bust. The median credit score for approved loans has increased by about 40 points since 2006. Median credit scores “now exceed by a considerable margin” those for any time in the past 12 years, the report said. The bottom tenth of all home-purchase borrowers had seen an even larger increase of around 50 points. . . .
Due to more conservative credit standards, “the impact of lower mortgage rates on housing is probably less powerful than normal,” said William Dudley, president of the Federal Reserve Bank of New York, in a speech on Tuesday in Florham Park, N.J. While rising home prices could ease that constraint over time, he said, “the difficulties of households with lower credit scores in obtaining mortgage credit warrants ongoing attention.”
This is like pushing on a string. The Fed is trying to stimulate the economy by keeping interest rates low, especially for mortgages, but many borrowers aren’t qualifying for loans. If banks don’t want to lend or can’t find qualified customers, it doesn’t really matter how low interest rates go. It’s a remarkable spectacle in a way: the Fed is printing money that nobody wants.
We at Via Meadia are ready to do our part save the American economy. If the Fed wants to stimulate the economy by printing money, it can deliver it to stately Mead Manor in glamorous Queens. We promise to spend every dime, thereby stimulating the economy and creating a new boom.