Yun, Chief Economist for the National Association of Realtors® (NAR) said Monday
that there would be enormous benefits to the nation's economy if mortgage
lending standards would return to normal.
lending standards would permit 500,000 to 700,000 additional home sales in the
coming year," he said. "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's remarks accompanied release of NAR's
monthly nationwide survey of Realtors, this month combined with an analysis
from Yun's office of historic credit scores and loan performance.
The survey of Realtors Yun said, shows
widespread concern over continuing tight conditions, delays in mortgage
approvals, and excessive requirements for documentation. Some respondents said it appeared that lenders
were focusing only on loans to individuals with the highest credit scores.
said 53 percent of loans in August went to borrowers with credit scores above
740 while in the 2001 to 2004 time period only 41 percent of loans backed by
Fannie Mae and 43 percent of those backed by Freddie Mac were above 740. In 2011, about 75 percent of total loans
purchased by Fannie Mae and Freddie Mac, which are now a smaller market share,
had credit scores of 740 or above.
There is a
similar pattern for FHA loans. The Office of the Comptroller of the
Currency has defined a prime loan as having a FICO score of 660 and
above. However, the average FICO score for denied applications on FHA
loans was 669 in May of this year, well above the 656 average for loans
actually originated in 2001.
12-month default rate is about 0.4 percent, the rate that prevailed in 2002 and
2003. The rate then spiked to 3.0
percent for Fannie Mae and 2.5 percent for Freddie Mac in 2007, reflecting the
risky mortgages written in the 2005-2007 period. Since
2009, the 12-month default rates have been abnormally low, averaging 0.2
percent for Fannie and 0.1 percent for Freddie despite the high unemployment
that has existed in the timeframe.
conditions, existing-home sales should be in the range of 5.0 to 5.5
million. "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."
Yun said all
it takes is a willingness to recognize 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. A loosening of the overly restrictive lending standards is very
much in order," he said.