The housing market’s recovery could surge if mortgage-lending standards returned to historical norms, according to the National Association of Realtors.
"Sensible lending standards would permit 500,000 to 700,000 additional home sales in the coming year," said Lawrence Yun, NAR’s chief economist. Yun’s remarks accompanied the release of NAR’s monthly realtor survey and an analysis of historic loan standards. "The economic activity created through these additional home sales would add 250,000 to 350,000 jobs in related trades and services almost immediately, and without a cost impact."
The survey of realtors shows widespread concern over continuing strict conditions, delays in mortgage approvals, and excessive requirements for documentation, Yun said. Respondents said 53 percent of loans in August went to borrowers with credit scores above 740, while from 2001 to 2004, only 41 percent of loans backed by Fannie Mae and 43 percent of those backed by Freddie Mac were above 740. In 2011, about 75 percent of total loans purchased by Fannie Mae and Freddie Mac, which now hold a smaller market share, had credit scores of 740 or above.
"Sales this year are projected to rise 8 to 10 percent. Although welcoming, this still represents a sub-par performance of about 4.6 million sales," Yun said. Under normal conditions, existing-home sales should be in the range of 5.0 to 5.5 million. "These findings show we need to return to the sound underwriting standards that existed before the aberrations of the housing boom and bust cycle, and thoroughly re-examine current and impending regulatory rules that may cause excessively tight standards."
Yun said lenders will need to recognize that the over-correction following the bust needs scaling back to hasten growth, and since price measures are showing sustained gains, the optimal moment has arrived. "There is an unnecessarily high level of risk aversion among mortgage lenders and regulators, although many are sitting on large volumes of cash which could go a long way toward speeding our economic recovery. A loosening of the overly restrictive lending standards is very much in order," he said.