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With 30-year mortgage rates at historic lows, some are hopeful that banks might be relaxing those standards, but industry data actually points in the other direction.

OF COURSE it's going in the opposite direction.

Let's assume for the sake of argument that between costs of issuing a loan that are not covered by fees, costs of foreclosing on and disposing of a property, and the cost of funds tied up in non-performing mortgages, lenders collectively lose about 25% of the purchase price (or outstanding balance if higher) when a two-year-old mortgage is foreclosed on. (I am not claiming that this number is accurate; I have no idea. Like I said, let's assume.)

On a nothing-down loan at 8% interest, that's a touch over 3 years interest on a single performing loan of the same size. If the buyer paid as agreed for the first year, there are only 2 years left.

On a nothing-down loan at 3% interest, that's about 8 years interest on the performing loan, and there are 7 years left. More than 3 times as long.

And even that isn't the final story, because lenders have ongoing costs that aren't tied to interest rates. If those amount to 1%, then the lenders net 7% on the first loan and it takes about 3.6 years for a performing loan to cover the loss; the second loan nets 2% and it takes 12.5 years - a large fraction of the term of a mortgage, which means that the mortgage is paid down to a more significant degree so the interest stream is slowing and it's actually longer than that.

At lower interest rates lending standards are stricter - because lenders aren't complete idiots. (The ones who are, go broke - or get government-backed guarantees and the government goes broke.)

You CANNOT get sane but easy lending with low interest rates. Period. It's a contradiction in terms.

And we cannot afford more insane lending. We should be thanking lenders for not loaning money to bad credit risks - not criticizing or prosecuting them.
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