NAR: Tight Lending Standards Stunting Home Sales and Employment

If Realtors have anything to say about tight lending standards, the observation would be such standards are preventing more home sales and holding back job creation.

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The Washington, D.C.-based ""National Association of Realtors"":http://www.realtor.org/ recently reached their conclusions in a survey conducted with real estate agents.

""Sensible lending standards would permit 500,000 to 700,000 additional home sales in the coming year,"" NAR chief economist ""Lawrence Yun"":http://www.realtor.org/bios/lawrence-yun said in a statement. ""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 findings? Lenders take too long with applications, requiring excessive information and preferring only interested homebuyers with high credit scores.

Survey respondents reported that 53 percent of loans went to borrowers with credit scores above 740 in August, a sharp contrast when compared with the fact that 41 percent of homeowners with the same credit held these mortgages from 2001 to 2004.

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According to NAR, about three-fourths of loans bought by ""Fannie Mae"":http://www.fanniemae.com/portal/index.html and ""Freddie Mac"":http://www.freddiemac.com/ went to borrowers with credit scores of 740 or above.

The trade group observed that loan applications backed by the Federal Housing Administration showed an average FICO score of 669 in May, significantly higher than 656 for loans originated in 2001.

Yun intimated that reportedly tight lending standards could hurt existing-home sales, which typically range from 5 million to 5.5 million in better times.

""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.

""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,"" he added.

While looser lending standards can threaten default rates, NAR brought attention to improving loan performance in recent years.

Yun pointed out that since 2009, the 12-month default rates have been abnormally low, with Fannie Mae default rates averaging 0.2 percent and Freddie Mac rates averaging 0.1 percent. NAR stated this is notable considering higher unemployment in the timeframe.

In 2007, the twelve-month default rates peaked to 3.0 percent for Fannie Mae loans and 2.5 percent for Freddie Mac loans, according to NAR.