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Mortgage Q&A: Too-tight credit gets recognized

- - Wednesday, November 21, 2012

I read something online last week that almost made my head explode. The headline read, "Mortgage lending standards are too tight: Bernanke."

Federal Reserve Chairman Ben S. Bernanke acknowledged in a speech at a conference in Atlanta last week that lending standards appear to be "overly tight" and are preventing creditworthy borrowers from buying homes or refinancing, which is impeding the economic recovery.

The concept of overly strict underwriting guidelines and lack of common sense in the loan approval process has been a frequent subject of this column since the mortgage meltdown and subsequent credit crunch. Allow me to quote Mr. Bernanke in his speech on Nov. 15:

"[I]t seems likely at this point that the pendulum has swung too far the other way, and that overly tight lending standards may now be preventing creditworthy borrowers from buying homes, thereby slowing the revival in housing and impeding the economic recovery."

I almost lost my lunch. It took these mucky-mucks this long to figure out something that a lowly loan officer has been preaching for years? I dug up a few of my past Mortgage Q&A columns and picked out a few quotes.

March 13, 2009: "Think of the 'easy mortgage money' days as a pendulum swinging wildly in one direction. Since the collapse of the mortgage industry, the pendulum has swung just as wide in the other direction. Loans are harder to get, and underwriters have become completely unreasonable."

Jan. 22, 2010: "Today's lending policies make no more sense than the myopic policies on the other side of the spectrum when the subprime lending market was the rage. The mortgage industry is in desperate need of common sense and balanced underwriting."

Dec. 31, 2010: "So my New Year's wish is clear: Common sense in making loans to qualified individuals would relieve the credit crunch, stimulate the housing market and improve the economy."

Oct. 21, 2011: "[T]he over-the-top underwriting guidelines are prohibiting many qualified borrowers from taking advantage of the lowest rates in 50 years. The best example is Fannie and Freddie's refusal to consider savings and assets as consideration for loan approval if income is insufficient."

March 9, 2012: "If the Fed really wants to get our economy moving again and get credit flowing, they had better find a way to eliminate these nonsensical details that are plugging up the credit markets."

Mr. Bernanke's surely on the right track with his acknowledgment of the problem, albeit almost four years later than it should have been. The whole thing reminds me of a bucket brigade. Mr. Bernanke has been very successful in lowering rates with the goal of stimulating the economy. But if creditworthy borrowers can't get to the low rates, it doesn't do a lot of good. You're only as fast as the slowest guy in the line.

Henry Savage is president of PMC Mortgage in Alexandria. Send email to henrysavage@pmcmortgage.com.