U.S. home sales – and, by extentsion, job creation – could be ‘notably higher’ if financial institutions could return to ‘reasonably safe and sound lending standards,’ according to a new survey released by the National Association of Realtors (NAR).
NAR says that its most recent monthly survey of Realtors found widespread concern over what it calls ‘unreasonably tight credit conditions’ for residential mortgages. Realtors responding to the survey indicated that tight conditions are continuing, lenders are taking too long in approving applications and that the information that lenders require from borrowers is excessive.Â
‘Sensible lending standards would permit 500,000 to 700,000 additional home sales in the coming year,’ says Lawrence Yun, NAR's chief economist. ‘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.’
Yun adds that there needs to be an acknowledgement that market conditions have turned in the wake of an over-correction in home prices, with all of the price measures now showing sustained gains.
‘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,’ he says. ‘A loosening of the overly restrictive lending standards is very much in order.’Â
Respondents to the recent NAR survey reported that 53% of loans in August went to borrowers with credit scores above 740. In comparison, only 41% of loans backed by Fannie Mae had FICO scores above 740 during the 2001 to 2004 time period, while 43% of Freddie Mac-backed loans were above 740. In 2011, about 75% of total loans purchased by Fannie Mae and Freddie Mac had credit scores of 740 or above.Â
Yun notes that even though the 12-month default rates have been abnormally low since 2009, existing home sales projections are still far below normal.
‘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,’ says Yun.