Did we make it too hard to get a mortgage after 2008? A new report says yes.

A report from the Pew Charitable Trusts argues that it’s too hard to get a mortgage in the United States - and that lenders should be offering loans to people with weaker credit scores, despite the specter of the 2008 housing crash that was caused by extensive lending to people who couldn’t afford their homes.

“The truth is as much as we have as a country really put policies in place to get rid of those bad practices, the pendulum did swing a little too far,” said Tara Roche, who supervised the report at Pew. “It cut out a lot of people who could reasonably take on a monthly mortgage payment.”

The average credit score of people who successfully obtained a mortgage was 695 in 2006. It skyrocketed starting in 2007 and has continued to climb in recent years, hitting a high of 742 in 2024 - 29 points above the average credit score in the U.S. The share of mortgages going to people with credit scores in the 600s has plummeted.

The tighter standards might be disproportionately locking out younger, rural and minority households. From 2013 to 2023, more than 35 percent of Black borrowers had credit scores in the 600s, compared with under 20 percent of borrowers overall, the Pew report notes.

The report argues that the federal entities, including Fannie Mae and Freddie Mac, whose backing influences nearly 9 in 10 mortgages in the U.S. should loosen their requirements.

Some experts objected that the Pew report is pointing in the wrong direction, back toward the 2008 crash.

“When I saw this, I thought: No, no, not again,” said Sheila Bair, who sounded the alarm about subprime mortgages when she became chair of the Federal Deposit Insurance Corp. in 2006 and played a major role in the federal government’s reforms after the crisis. “Credit standards are not just to protect lenders and the government who’s guaranteeing most of these mortgages. They’re to protect homeowners, too.”

Roche said Pew’s report does not encourage a return to the subprime mortgage days.

“We will not go back to that. It’s hard to make the low-documentation, no-documentation loans that existed back just prior to the Great Recession,” she said. Indeed, the report notes that nearly 4 in 10 loans in 2006 required almost no proof of income; today, the percentage is in the single digits, mostly to help self-employed people get loans. “A healthy market means one that tries to mitigate risk. Not one that tries to completely eradicate it.”

Last month’s Pew report, written by Adam Staveski, also recommends an alternative way of assessing buyers, looking at the money coming in and out of a person’s bank account rather than their credit score.

A world with overly tight mortgage credit, Roche said in an interview, has negative consequences for home buyers and the overall housing market. Buyers who can’t get mortgages turn to alternatives with fewer legal protections, such as contract-to-deed or rent-to-own arrangements in which the seller retains the deed while the buyer pays for the house in installments.

A separate Pew report published Monday found that such arrangements account for about 0.4 percent of U.S. home sales and that the home buyers are unusually vulnerable to losing their homes, more than they would be with the protections of a mortgage.

Roche said overly tight lending standards are one reason that American developers have spent recent decades building large houses instead of starter homes: They’d build cheaper houses if they thought the people who want them could get the mortgages to buy them.

Housing analyst Kevin Erdmann said he supports the idea that the pendulum swung way too far against mortgage lending. By his assessment, the problem began from almost the moment the 2008 housing crisis started to materialize.

“I would say the financial crisis itself, at the end of the day, was caused by the mortgage crackdown that started to hit hard at the end of 2007,” he said. “Because after the subprime boom disappeared, federal agencies stopped serving the bottom third of their historical market. That collapsed the prices. That was actually the cause of the crisis.”

Erdmann has analyzed home prices in neighborhoods popular before the crisis with lower-income buyers. “The families that lived in them were not allowed to be buyers anymore,” he said.

He said the current political frustration with institutional investors who have bought single-family homes is misplaced. “That story gets told as Wall Street coming in and buying up [houses],” he said. “The story happened because those families weren’t allowed to compete with Wall Street at that point.”

But in the present, after years of under-building, loosening mortgage standards wouldn’t remedy a problem nearly 20 years in the making, Erdmann said. The problem is now a severe lack of housing supply. There are already more households with mortgages available to them than houses to buy.

Patricia McCoy, who oversaw mortgage markets at the Consumer Financial Protection Bureau when it was created in response to the 2008 crisis, agreed that today’s high home prices are much more of a barrier to low-income households than their credit history.

“Their incomes simply are not enough to buy the essential goods that they need to get through the month, let alone to buy a home,” said McCoy, a professor at Boston College.

“The credit score requirement for mortgages have gone up and up, and they’re probably too high now,” she said. But that’s not what’s holding most people back from buying, she added. It’s the prices.

McCoy also pointed out that since 2013, a steadily rising share of mortgages have been originated by companies that exist mainly to sell mortgages to customers and then quickly resell them, generally to Fannie Mae and Freddie Mac. At latest count, 83 percent of mortgages aren’t originated by banks. These companies, McCoy suggested, lack the capital of banks and cannot afford to take on the risk of a shakier buyer.

Political leaders have cautiously embraced the idea of loosening mortgage underwriting standards recently, as they look for ways to help Americans afford houses. The major housing legislation passed by Congress this summer includes provisions meant to lead to more mortgages under $100,000 being issued.

President Donald Trump issued a multipoint executive order on “Promoting Access to Mortgage Credit.” Several federal agencies recently began allowing lenders to use alternative credit scores, including a metric called VantageScore 4.0, in place of the traditional FICO score.

VantageScore said it could not connect The Washington Post with any borrowers who were denied based on their FICO score but eligible based on VantageScore 4.0. Several organizations that work with lower-income households could not identify any would-be buyers turned away based on their credit score when asked by The Post and Pew.

Bair, the former FDIC regulator, said she supports some of Pew’s ideas, including encouraging lenders to evaluate alternative criteria, such as an applicant’s history of on-time rent payments. But “dramatically” loosening standards poses risks, including driving up housing inflation if more people could compete to buy already scarce houses, she warned.

“There’s just constant political pressure to loosen standards, loosen standards. What we learned during 2008 is that you’re not doing these homeowners any favors by putting them into a home they can’t afford,” Bair said.

Even as buyers’ credit scores have risen, she noted, other market signals are looking riskier, already raising concerns about the amount of debt that home buyers are taking on. Debt-to-income ratios (comparing the size of the mortgage and the borrower’s paycheck) and loan-to-value ratios (comparing the size of the mortgage and the value of the house) are at very high levels today compared with recent years.

“We see this with deregulation generally. The new rules you put in place, the tougher standards work. They provide stability. And then maybe people say, ‘We don’t need to be so tough. Everything’s going so well. Let’s loosen up again,’” Bair said. “I think we’ve got it just about right in terms of credit standards.”

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