Looser mortgage standards accompany rise in delinquencies

The Wall Street Journal reports that mortgage delinquencies are continuing to rise — up to 2.33% at the end of the third quarter. But, according to Economy.com, the rise in delinquencies has more to do with looser standards by mortgage lenders than problems in the job market.

Despite the worsening delinquency problem, lenders have continued to loosen their credit standards, says the Comptroller of the Currency, John Dugan. This is very unusual. Lenders usually tighten credit when the housing market cools.

Banks appear to be doing this to boost loan volume at a time when loans would normally decline. Dugan is worried that this will result in excessive foreclosures followed by a retrenchment that will significantly reduce the availability of mortgages to middle income people.

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