Mortgage Banking: What’s Driving Tight Credit

Mortgage Banking magazine featured Fed Chairman Ben Bernake’s remarks to NAHB at the International Builders Show in a comprehensive article by George Yacik about the tight credit market for mortgage loans. According to the article, lending standards have gotten tighter in recent months, primarily the result of lender’s reaction to Fannie Mae’s action to require lenders to buy back mortgages even when the mortgages were made to Fannie Mae standards.  Some banks, like Bank of America, have stopped selling mortgages to Fannie Mae.

From the article:

No one is more aware of that than Federal Reserve Chairman Ben Bernanke, who noted in his speech to the Washington, D.C.-based National Association of Home Builders (NAHB) in February that “the state of the housing sector has been a key impediment to a faster recovery. In the typical economic recovery, a resurgent housing sector helps fuel re-employment and rising incomes. But that scenario has not played out this time.”  The main reason for that, he said, is tightened mortgage credit. “In prior recoveries, mortgage credit had begun to grow four years after the business cycle peak – but not this time around,” he said. “Despite monetary policy actions that have helped drive mortgage rates to historically low levels, many lending institutions have tightened underwriting conditions dramatically, relative to the pre-recession period. Given the lax standards during the credit boom, some tightening was doubtless appropriate to protect consumers and ensure lenders’ safety and soundness. However, current lending practices appear to reflect, in part, obstacles that are limiting or preventing lending even to creditworthy households,” said Bernanke.

Tight Credit Conditions Impeding Housing and Economic Recovery, Fed Chairman Tells Home Builders

Restraints on credit for home buyers and home builders alike continue to impede the housing and economic recovery, Federal Reserve Chairman Ben Bernanke said in an address to the National Association of Home Builders (NAHB) Board of Directors in Orlando.

“Banks remain reluctant to make loans, both to mortgage borrowers and home builders,” said Bernanke, who noted that current credit conditions are too tight for the financial system, for the construction industry and the economy.

The Fed chairman said that his message to regulators is for them to take a balanced approach and to approve loans for those who meet sound underwriting standards.

“Do not turn away creditworthy borrowers, and that includes home builders,” he said.

“Chairman Bernanke understands that today’s tight credit conditions are preventing qualified buyers from obtaining home loans and builders from getting financing for the construction of viable new home building projects – and that this is harming the housing market as well as the overall economy,” said Barry Rutenberg, the newly elected chairman of the National Association of Home Builders (NAHB) and a home builder from Gainesville, Fla.

Noting that many local markets have an overhang of empty and foreclosed homes, the current harsh lending environment, and that the weak housing market is impairing the financial health of home owners, Bernanke said that the “state of the housing market has been a key impediment to a faster recovery.”

“For these reasons, and because the troubled housing market depresses construction activity and employment, we need to continue to develop and implement policies that will help the housing sector get back on its feet,” the Fed chairman said. “No single solution will be sufficient. But sustained efforts to address the many interlocking factors holding back the housing market will pay dividends in the long run.”

He also added that the Fannie Mae and Freddie Mac limits on investor loans are counterproductive in the current economic climate and that policy should be to encourage more loans to help ease the inventory of distressed properties.

Bernanke’s remarks on the need to take more aggressive action to support a housing recovery confirms what the nation’s home builders have been saying for some time and reiterates similar themes in a Jan. 4 white paper provided to Congress, in which the Federal Reserve noted that “restoring the health of the housing market is a necessary part of a broader strategy for economic recovery.”

Fixing the nation’s housing woes is taking on a sense of increasing urgency in Washington. In unveiling a new plan last week, President Obama cited the important role that housing plays in the economy.

“A lack of building demand has kept hundreds of thousands of construction workers idle,” said Obama. “Everybody involved in the home building business – folks who make windows, folks who make carpets – they’ve all been impacted. The challenge is massive in size and scope, because we’ve got a multi-trillion dollar housing industry.”

Yesterday, the President reiterated the high value that Americans place on homeownership and the need to help home owners while commenting on the mortgage settlement agreement reached between the states and five major banks.

“We can’t wait to get things done and to provide relief to America’s home owners,” Obama said. “We need to keep doing everything we can to help home owners and our economy.”

“You work and you save your entire life to buy a home,” Obama added. “That’s where you raise your family, that’s where your kids’ memories are formed. That’s your stake, your claim on the American Dream.”

With the proper policies in place, housing can serve as an engine of job growth, said Rutenberg, who noted that building 100 homes creates more than 300 full-time jobs and generates $8.9 million in federal, state and local revenues to fund local schools and strengthen communities across the nation.

“In this key election year, the voters are calling on the Administration and Congress to take actions to restore the health of the housing industry in order to create jobs, increase household wealth and keep the economy on an upward trajectory,” he added.

Click here to watch a replay of Bernanke’s address.

IBS: Special Session with Fed Chairman Ben Bernake Planned

Attendees of the 2012 International Builders Show (IBS) will have the exclusive opportunity to hear Federal Reserve Chairman Ben Bernanke deliver remarks during a special session at the National Association of Home Builders’ (NAHB) board of directors meeting on Friday, February 10 at 12:30 pm.

The event, held in the Valencia Ballroom of the Orange County Convention Center, will have limited general seating available on a first-come, first-served basis.

Friday, Feb. 10, 2012
2:30 p.m. ET

Orange County Convention Center
Valencia Ballroom
Orlando, Fla.

The special session with Chairman Bernanke is open to all registered attendees of the 2012 International Builders Show; however seating is limited and available on a first-come, first-served basis. To register for IBS, please visit

Fed Chairman also is expressing concern about housing

In a speech on the economic outlook of the U.S. economy, Federal Reserve Chairman Ben Bernanke highlighted challenges in the housing sector as one reason why economic growth is weak:

“In contrast, virtually all segments of the construction industry remain troubled. In the residential sector, low home prices and mortgage rates imply that housing is quite affordable by historical standards; yet, with underwriting standards for home mortgages having tightened considerably, many potential homebuyers are unable to qualify for loans.”

Read the rest of the report at NAHB’s Eye on Housing by clicking here.

Read our post on “pundits” commenting on the housing market by clicking here.