As the housing market struggles for footing and on-going regulation reform, mortgage lenders continue to maintain cautious lending practices that may be hindering the market's ability to foster any positive momentum toward recovery.

According to a report by The Wall Street Journal, the nation's 10 largest mortgage lenders rejected 26.8% of mortgage applications in 2010.  This is a 3.3% increase over 2009.  The increase is leading some economists to argue that lending standards are now too conservative making difficult for some qualified borrowers to obtain loans.

"As the noose on credit availability tightens, credit is being choked off at a time when the housing market is extremely fragile," says Laurie Goodman, senior managing director at Amherst Securities Group LP.

The report notes that self-employed applicants and those that have had disruptions in income due to a period of unemployment or decrease in earnings are having a more difficult time getting approved for loans.  Unfortunately, these scenarios are all to common in an economy where many have been impacted in some way by the recession.

Data in the report included both refinance and purchase applications.  A larger percentage of refinance applications, 27.2%, were denied compared to purchase applications at 19.9%.  Rejected refinance applications were up by 2.8% from the previous year, purchase denials were only 0.3% higher than 2010.  Miami had that highest rate of application denials at 44% of all applications.

The article points to a conundrum faced by the housing market.  The housing finance market needs price stability and appreciation to fuel the availability of capital and the housing market needs lending to fuel price stability and appreciation.  All while the government  is seeking ways to reduce their footprint in the housing finance market and on-going regulation reform is revising the rules on a regular basis.