Quicken Loans is taking flack for its Super Bowl ad, which focused on a new website, Rocket Mortgage, designed to make it easier to get a mortgage, so easy that you can do so on your phone. Critics are saying that by making mortgages seem like a scroll and click proposition, Quicken is being tone-deaf about the 2008 subprime crisis. At worst, they say the spot harkens back to an era where credit was all too easy to get. I disagree.
The ad is saying something important about the need to get more individual buyers in on the housing recovery. Here are three reasons why:
The 2008 subprime crisis wasn’t as much about bad borrowers defaulting on loans as it was about a financial system that rewarded risk, opacity and leverage. There was a myth following the subprime crisis that low-income earners who put only a few percentage points down on a mortgage simply should never have been homeowners, and that this was the fundamental lesson we should have taken away. But research shows it’s not that simple—Americans who defaulted on their mortgages in the wake of the subprime crisis came from a wide swath of the socioeconomic spectrum. And a number of reports have found that policies aimed at increasing affordable housing had little to do with speculative lending, which would have happened regardless. (This has been documented by any number of Federal Reserve research papers, not to mention Senator Elizabeth Warren, who chronicles the story and the research in her book A Fighting Chance.)
It’s often not the sheer amount of cash that people can throw at a mortgage that identifies them as a good credit risk. One ten-year study by the University of North Carolina at Chapel Hill, for example, found that poor buyers putting less than 5% down are no different from the average Americans as credit risks go, if they are vetted by metrics other than how much cash they have on hand. That’s not to say we should have runaway borrowing as we did in the run-up to 2008, but credit is still constrained relative to historical averages. As recently as 2014, former Fed Chair Ben Bernanke, who isn’t exactly hard-up (he reportedly makes at least $200,000 a speech), lamented that he wasn’t able to refinance his home because of tight credit conditions.
When the head of the Fed can’t get a mortgage, you know you’ve got a problem.
There is no consumer housing credit bubble brewing right now–quite the opposite. The housing recovery right now is being driven not by first-time homebuyers or people who want to trade up but by the wealthiest and investors. Private equity firm Blackstone has become the largest buyer of single family homes in the country over the last few years. Why is this? Most ordinary Americans need mortgages to buy real estate; at current housing prices and incomes, it would take a typical family more than twenty years to save even a 10% down payment for a home plus closing costs. But they can’t get the loans, because in our post-crisis world, banks are still keeping credit tighter than usual. Besides, many individuals simply don’t have the secure employment, nest egg, and increasingly high credit scores needed to obtain a mortgage these days. Cash down of 20% to 30% and credit scores of 700 and up are now the norm for individual mortgages, despite the fact that almost two-thirds of Americans have ratings below 750.
This, of course, goes to the root of the real issue in housing right now: to truly create a viable home buying market for individuals, we need not only more reasonable mortgage lending practices, but also a more sustainable recovery and a greater number of good middle-class jobs. That is the only way consumers will be able to build up the financial security necessary to buy into the market.
Quicken Loans can’t fix that issue, though founder Dan Gilbert has done a decent job of creating job growth in downtown Detroit. Nor can it make the financial system as a whole want to lend more to Main Street than to Wall Street. But to the extent that the Quicken ad brings home the fact that more individuals who have the right qualifications need to be able to more easily get in on the current low rate environment and get their share of the housing market recovery, it’s a good thing. As Quicken Loans president Jay Farner told me, the point of the new program is to take “pain points out of the process for clients who qualify under agency guidelines. Adding simplicity and transparency will help Americans feel more comfortable securing a mortgage.”
Whether Quicken does that or not, its ad hits an important economic truth: housing is a huge generator of consumer spending, and job growth. If you can fix housing, you can fix the economy.