Are the banks causing a housing slowdown?

NEW YORK – Sept. 10, 2014 – Some analysts are blaming the slowdown in the housing market on banks that prevent many prospective buyers from getting a mortgage.

"It is difficult for any homeowner who doesn't have pristine credit these days to get a mortgage," Federal Reserve Chairwoman Janet Yellen said in June.

Bank giants have been confirming that in recent months. John Stumpf, CEO of Wells Fargo & Co., the nation's largest mortgage lender, said that the lender isn't willing to lend to lower-income borrowers or those with low credit scores. That won't change unless government regulators make it more difficult for investors to force banks to repurchase securitized loans.

"If you guys want to stick with this program of 'putting back' any time, any way, whatever, that's fine. We're just not going to make those loans, and there's going to be a whole bunch of Americans that are underserved in the mortgage market," Stumpf said, referring to loan-purchase demands by Fannie Mae, Freddie Mac and private investors.

In July, JP Morgan Chase & Co. CEO James Dimon said that the bank's volume of loans insured by the Federal Housing Administration was way down for the year.

"We want to help the consumers there, but we can't do it at great risk to J.P. Morgan, so until they come up with some kind of safe harbors or something, we're going to be very, very cautious in that line of business," Dimon said.

Mortgage lending has been slowing. The Mortgage Bankers Association predicts the volume of mortgage-loan originations will fall 12 percent this year, despite interest rates being at yearly lows.

"The lowest quarter of the housing market [by price] will see less demand, fewer sales, less increases in price and more decreases in price" unless banks change their mortgage-lending policies, says David Blitzer, the managing director and chairman of the Index Committee at Dow Jones S&P Indices.

Lawrence Yun, chief economist for the National Association of Realtors®, says that 15 percent more mortgage applications are being denied this year than in 2000 – but that's "relatively normal" for the housing market.

Still, "a robust recovery is not occurring," Yun says. "We are projecting a slow recovery in home-sales activity because of the current tight underwriting standards."

Source: "Opinion: When the Next Housing Bust Hits, Blame the Bankers," MarketWatch/The Wall Street Journal (Sept. 4, 2014)