Magazine article American Banker

HUD's Castro Seeks Balance between Credit Quality and Quantity

Magazine article American Banker

HUD's Castro Seeks Balance between Credit Quality and Quantity

Article excerpt

Byline: Bonnie Sinnock

In theory, lenders are generally receptive to regulators' calls for broader consumer access to credit, but they're also concerned about the increased risk it might entail.

Regulators and lenders have been wary of broadening credit ever since lending standards loosened severely during the run-up to the housing crisis, resulting in scads of borrowers with loans they couldn't afford.

In a Sept. 16 speech, Julian Castro, the new Secretary of the Department of Housing and Urban Development, said lending standards have become too tight and called for changes that would expand homeownership opportunities. Now he faces scrutiny over how this can be attained without credit quality declining.

"That's a great question. I think that's right at the heart for folks who wonder, why would we promote homeownership now? They associate it with what happened before," he said in a speech at a Ginnie Mae meeting in Washington on Sept. 22. "The first thing I would say is I believe controls have been put in place on both sides -- on the lender's side and on the public's side -- since then, and that the pendulum has just swung too far in the other direction."

Castro, in addition to reiterating comments from his previous speech about average borrower credit scores for government loans being too low, said evidence of this lies generally in the level of overlays or additional underwriting criteria lenders put in place beyond those required by government programs.

Current credit overlays are not only stricter than they were precrisis, but are tighter than they were 15 or more years ago. …

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