Easy To Say Tight Lending Hurts Housing If You’re Not A Lender
I don’t know if this falls under the category of late-breaking news, and there are plenty in the industry who will disagree, but:
The National Association of Home Builders (NAHB) concurs with a finding by the Federal Reserve Board (FRB) that excessively tight mortgage lending standards are hampering a housing and economic recovery. ‘The Federal Reserve’s report to Congress confirms what we have been saying for some time: That extraordinarily tight credit conditions are preventing creditworthy borrowers from obtaining home loans and this is harming the housing market and the broader economy,’ said NAHB Chairman Bob Nielsen, a home builder from Reno, Nevada.
Nielsen feels that the lack of credit extends to housing construction loans as well, which is crippling the housing industry and preventing construction of new homes in markets that need and want them.
We all know Nevada, and I was in Reno last week, much of which looks like a ghost town. Of course every foreclosure article one reads lists that state near or at the top of the problem states, and of course there is the little nagging problem of the “shadow inventory” that plagues us.
CoreLogic’s last shadow inventory report noted that the current residential shadow inventory as of October 2011 remained at 1.6 million units, representing a supply of 5 months. This was down from October 2010, when shadow inventory stood at 1.9 million units, or 7-months’ supply, but approximately the same level as reported in July 2011.
But the NAHB was basically responding to comments made by Federal Reserve Board Governor Elizabeth Duke, who noted that tighter underwriting in the lending space is stalling a meaningful housing recovery and impeding overall economic growth.
Duke says creditworthy borrowers are unable to secure mortgages at a time when interest rates are low and falling home prices are doing little to stimulate demand. Duke said:
Some of this tightening is appropriate, as mortgage lending standards were lax, at best, in the years before the peak in house prices. However, the extraordinarily tight standards that currently prevail reflect, in part, new obstacles that inhibit lending even to creditworthy borrowers. These tight standards can take many forms, including stricter underwriting, higher fees and interest rates, more stringent documentation requirements, larger required down payments, stricter appraisal standards, and fewer available mortgage products.
Duke says low or negative equity in homes is another barrier to refinancing, making it impossible for creditworthy borrowers to obtain traditional refinancing.
I think that the world would certainly be an interesting place if builders, politicians, Realtors, and Federal Reserve Board presidents underwrote home loans, serviced their loans, and had their own capital at stake after the loans were approved. Just sayin’…