Real Estate

The importance of underwriting standards to a healthy real estate finance market

Underwriting standards will have an impact on the real estate market by controlling speculation and risk taking. This took place when interest rates were low and the economy was strong. When this occurs, lenders increased the total amount of loans available. In most cases, the desire to add to their profit margins will result in practices that will ignore critical factors (such as: employment history, income and credit rating). Once this happens, is when financial institutions will make loans that are considered to be irresponsible. (Wickell, 2012) (Kolb, 2010)

After the economy begins to slow and interest rates are rising, is the point that these practices will hurt the lender. This is because the borrower more than likely could not afford the mortgage payment. This will result in the firm facing a wave of defaults. In...
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