One major difference between the housing finance system today and the system that prevailed prior to the financial crisis is in loan underwriting -- the set of rules and procedures governing who is approved for a loan and who is rejected. The swing has been from Lady Bountiful to Mr. Scrooge. Rules have been tightened across the board. Where the major mistake before the crisis was approving loans to borrowers who should have been rejected, the major mistake today is rejecting loans that should be accepted. The problem has been compounded by a cyclical swing in home appraisal bias. During the period of steady home-price increases before the crisis, appraisals tended to have an upward bias, which meant that they seldom derailed a transaction that was otherwise acceptable. Today, with home prices having declined sharply and with no price recovery yet in sight, appraisals have a downward bias. Deals are not getting done because the property values are coming in too low. Becau...
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