Regulators and lenders could spur the creation of 250,000 to 350,000 jobs by easing tight lending standards that are causing an overcorrection in the space, the National Association of Realtors said Monday.
If there is one complaint NAR Chief Economist Lawrence Yun gets the most from Realtors, it's that the mortgage market is too tight with 53% of August loans going to borrowers with credit scores above 740, according to NAR survey data.
From 2001 to 2004, only 41% of loans backed by Fannie Mae had FICO scores above 740. For Freddie Mac, that number held at 43% during the first four years of the decade.
But today lenders are worried about regulations, NAR suggests. And these worries are making them overly conservative, pushing the market into overcorrection mode. The end result is a real estate market where job growth is suppressed as lenders only leak out loans to the most prime borrowers.
"Sensible lending standards would permit 500,000 to 700,000 additional home sales in the coming year," Yun 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."
Realtors surveyed by NAR says lenders are taking too long when approving mortgage applications while also requiring excessive information from borrowers. The end result is a market where lenders are focusing only on borrowers with prime credit scores.
"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," Yun said. "A loosening of the overly restrictive lending standards is very much in order."
The average FICO score for borrowers denied mortgages this year hit 669 in May, NAR said. Yet, the Office of the Comptroller of the Currency still defines a prime loan as one with a FICO score of 660 and above – a measurement that is not reflected in who is getting a loan in today's lending environment.