Is Housing Moving Forward?

According to Federal Reserve Chairman, Ben Bernake, the housing market has demonstrated signs of recovery. However, with 20% of mortgage borrowers still underwater, we are far from a recovery. Attending the Hope Global Financial Dignity Summit in Atlanta on Thursday, Bernake stressed he was pleased with the price increase of the past consecutive 9 months. However, weak construction and potential foreclosures continues to stall the industry. A reported seven percent of mortgages are either 90 days or greater in the process of foreclosure. He indicated the restrictive lending conditions are a major factor in the slow housing recovery. "Lenders began tightening mortgage credit standards in 2007 and have not significantly eased standards since," according to the Chairman. He continued by citing the Federal Reserve's Senior Loan Officer Opinion Survey on Bank Lending Practices, "terms and standards have tightened most for borrowers with lower credit scores and with less money available for a down payment." However, in my opinion, even with the restrictive lending guidelines, these programs are still widely available. With FHA loans requiring a minimal 3.5% down payment and a credit score as low as 620, borrowers still have access to funds. In contrast, the jumbo buyers are those whom I feel are penalized because they are depending upon the private sector for funding. During the credit crisis, the Jumbo Lenders exited the industry and have yet to return.  As a result, the jumbo borrower has been squeezed from the market. There is no doubt the slow housing recovery is due to unemployment issues, since loss of income generally prevents homeownership. But in addition, the underwater homeowner with declining home prices and loss of equity coupled with the restrictive regulations are contributing to stall the housing industry. It is clear that recovery is underway but less restrictions will be required before we will see a significant improvement. With only 37% of the Dodd Frank Act being implemented, the industry is anxiously awaiting as the additional restrictions are unveiled.