Federal Reserve Governor Elizabeth Duke said new mortgage regulation may inhibit lending to borrowers with low credit scores even amid a rebound in the housing market.
“The housing market is improving, but mortgage credit conditions remain quite tight for borrowers with lower credit scores,” Duke said today in a speech in Washington. “New mortgage regulations will provide important protections to borrowers but may also lead to a permanent increase in the cost of originating loans to borrowers with lower credit scores.”
Policy makers have tried to correct lax lending standards that helped pump up a bubble in home prices which burst last decade, leading to the worst recession since the Great Depression. The Fed will consider the impact of new rules on the availability of credit, Duke said.
Lenders may be unsure of the conditions in which they will have to repurchase loans sold to government-sponsored mortgage finance companies, Duke said. Mortgage servicing standards have become tighter as a result of recent settlements, she said.
“A sustained recovery in the housing market appears to be under way,” the Fed governor said. “Although I expect housing demand to expand along with the economic recovery, if credit is hard to get, much of that demand may be channeled into rental, rather than owner-occupied, housing.”
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