Our friends at CoreLogic have asked two good questions in a blog this month. First, why so few loan applications by borrowers with low FICO scores today compared to 10 years ago? And, if credit is tighter today than then -- as it is, by all testimony -- why has the rate of decline of applications fallen? The answers lie mostly in regulatory space, and only a small part in changes in the lending marketplace. What's CFPB got to do with it? The arrival of the Consumer Financial Protection Bureau (CFPB) in 2009 has been tough on us. And of course, lenders deserve tough. But neither we nor consumers deserve ongoing punishment for a credit bubble which ended completely in 2008. The CFPB is an energetic enforcer, and even more threatening than enforcing. One of its first tries was to change the loan application process to make it more thorough (fine), timely (fine), and with elaborate new documents setting lender rate and fee quotes in concrete. As everyone in the real est...
- There is a new CFPB definition of “application,” which requires six pieces of consumer information.
- All over the country we have crazy conversations in which the lender avoids income or address, yet runs a credit report.
- Another element has changed since the heat of the bubble: In 2005 we had a zillion ways to put a loan together. Today's product array is much more limited.