Bernanke: Even worthy borrowers can't get mortgages
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U.S. Federal Reserve Chairman Ben Bernanke smiles as he concludes a news conference following the monthly two-day meeting at the Federal Reserve in Washington, April 25, 2012.
Credit: Reuters/Jason Reed
Thu May 10, 2012 1:27pm EDT
(Reuters) - Banks have become so restrictive in making mortgages that many worthy homebuyers are being frozen out of the U.S. housing market, and lending practices are not likely to loosen any time soon, Federal Reserve Chairman Ben Bernanke said on Thursday.
Speaking via satellite to a banking conference in Chicago, Bernanke highlighted ongoing problems in mortgage finance availability, even though banks are much healthier now as the 2007-2009 financial crisis has receded.
"To be sure, a return to pre-crisis lending standards wouldn't be appropriate," Bernanke said. "However, current standards may be limiting or preventing lending to many creditworthy borrowers."
Lax lending practices, including "liars' loans" handed out to borrowers who provided little or no documentation for jobs and incomes, have been cited as a key contributing factor in precipitating the severe financial crisis.
Bernanke implied the backlash by banks against criticism of their lending practices, which now are far tighter, might be overdone and will be extremely hard to reverse.
"Many factors suggest this situation will be difficult to turn around quickly, including the slow recovery of the economy and housing market, continued uncertainty surrounding the future of the government-sponsored enterprises, the lack of a healthy private-label securitization market, and cautious attitudes by lenders," Bernanke said.
Overall, Bernanke said, home mortgage credit outstanding at banks has contracted about 13 percent from its peak.
The government-sponsored enterprises - Fannie Mae and Freddie Mac - previously were key vehicles in home-mortgage finance because they bought mortgages originated by banks and packaged them into securities that were then resold to investors. The practice freed up funds for banks to make new mortgages.
But Fannie and Freddie had to be bailed out by the government and were taken over at the height of the crisis. The government is considering options that include possibly winding them down, leaving it unclear what type of housing-finance system eventually will emerge in future.
Bernanke said Fed surveys show that even when homebuyers can make a 20 percent down payment, banks are often reluctant to offer mortgage money to any but the best qualified.
"Most banks indicated that their reluctance to accept mortgage applications from borrowers with less-than-perfect records is related to 'putback risk' - the risk that a bank might be forced to buy back a defaulted loan if the underwriting or documentation was judged deficient in some way," he said.
Recent Fed surveys on credit conditions have found that, years after the crisis, banks remain worried about hangover from the bursting of the housing bubble and now also fear strains from the ongoing European debt crisis.
Loan officers said they were less willing now than they were five years ago to lend to anyone except those with stellar credit.
On the positive side, Bernanke said the banking system generally is in much stronger condition, with more capital on hand and ample liquidity, so that as recovery gains traction and generates more credit demand it will be in good shape to expand lending that is necessary for stronger growth.
(Reporting By Glenn Somerville; Editing by Leslie Adler)
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We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/Comments (2)USA4 wrote:May 10, 2012 1:22pm EDT -- Report as abusejimfin wrote:I bailed you out so you didn’t have to pay
I let you keep the money. Now it’s ruining my day.
You’re gettin it overnight at little more than 10.
But you’re investing in 10s yielding 200. Laughing then.
Lend I say! Today! Forget I ever said nay.
I’ve pumped and I’ve primed. Equities are the new cash.
The faux bourgeoisie I’ve created I will not let crash.
So go forth my minions of money. My disciples of debt
Your qualified. Your blessed. My 30 year sect.
Soon it will end. My usury will rise.
My highwire act. That balance sheet size.
To those undeserving, left at debts’ door
You deadbeats. My servants.
For you, I never planned to do more.May 10, 2012 1:25pm EDT -- Report as abuse
5/10/2012
Bernanke: Even worthy borrowers can't get mortgages
via reuters.com
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is it really any surprise that government regulators, looking in the rearview mirror have damaged another market in their attempts to follow a populist path rather than an appropriate one? another sad and expensive journey that politicians will ultimately blame on someone else- maybe banks? “rich people”? the only certainty is that this type of mistake will repeat itself…