The housing market experienced signs of recovery this year, but it’s far from out of the woods with 20% of mortgage borrowers still underwater, Federal Reserve Chairman Ben Bernanke said Thursday.

The Fed Chair discussed housing and mortgage finance at the Hope Global Financial Dignity Summit in Atlanta.

Bernanke said the Fed is pleased with the recent nine-month span of consecutive home price increases.

But weak construction numbers remain a drag and “7% of mortgages are either more than 90 days overdue or in the process of foreclosure,” he added.

The Fed chief also pointed to tighter lending conditions as a factor in the housing slowdown.

“Lenders began tightening mortgage credit standards in 2007 and have not significantly eased standards since,” the chairman said, 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.”

Bernanke said some tightening was warranted after the housing crisis, but added “it seems at this point the pendulum has swung too far the other way, and that overly tight lending standards may now be preventing creditworthy borrowers from buying homes.”

Bernanke’s statements showed a Fed Chairman who is well aware of the push-pull that is creating conflict in the mortgage market.

On one hand, federal regulators and new laws are trying to prevent unnecessary foreclosures and ensure a stable housing market. On the other hand, Bernanke realizes lending institutions are delaying the origination of certain loans because they fear new regulations and potential putback claims associated with today’s new regulatory landscape.

To a larger degree, the Fed chairman blames the slow housing recovery on unemployment issues since a loss of income generally forces citizens to avoid homeownership altogether.

Underwater borrowers also remain trapped, making it difficult for them to stimulate new market activity.

“[T]he fall in home prices means that many current homeowners cannot rely as much as they could in the past on tapping their existing home equity to trade up to larger or better homes, while underwater homeowners may be financially unable to move from their current homes,” Bernanke said.

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