Bernanke: Overly Strict Lending Hampering Housing Progress

By Korollos Shalaby

The U.S. housing market has improved, but is still "far from out of difficulties," said the Federal Reserve chairman, Ben Bernanke, on Thursday, noting that overly strict lending standards are part of the problem.

The Fed, which has put the focus on mortgage bonds during the last round of asset purchases, continues doing what it can to support the housing market, he added.

A bubble in the U.S. housing market triggered the financial crisis from 2007 to 2009 along with a brutal recession that continues to weigh on the world economy. Data from the last few months, however, have shown that the sector is reviving.

"While there are good reasons to be excited about the recent direction of the housing market, we should not be satisfied with the progress we have seen so far," Bernanke said in remarks prepared for an event.

The Fed chairman noted that tougher standards for giving credit were an appropriate response to the maximum price of houses and the crisis that followed.

"However, at this point it is possible that the pendulum has gone too far and now extremely stringent loan conditions are preventing deserve credit borrowers from purchasing homes, which therefore slows the recovery of the housing sector and prevents economic recovery, "he said.

Earlier this year, the Fed suggested that other authorities in Washington were considering steps to free up credit and boost the real estate sector.

But critics on Capitol Hill said that the Central Bank should remain attached to monetary policy.

In his speech, Bernanke avoided talking about policy measures that could be taken and detailed official initiatives already being implemented.

Housing prices have risen across the country this year and there are also positive signs in residential investment trusts, sales, demand and construction.

The property sector usually provides strong signals on the output of a recession in the U.S. economy, but the huge losses of assets have lagged the market this time.

An index of pending sales of existing homes in the U.S. rose more than expected in October, a sign that the recovery in the housing market rose in the fourth quarter despite a huge storm and concerns over a looming tax increase , a report showed on Thursday.

The National Association of Realtors (NAR) said its index of pending sales, based on contracts signed in October, increased 5.2%, to 104.8.

Economists polled by Reuters had expected a rise of 0.8%.

"We have had very good accessibility to housing for some time, but now we are seeing a greater impact constantly creating jobs," said NAR chief economist Lawrence Yun.

Yun said the data shows some impact of the massive storm Sandy that hit the U.S. East Coast in late October.

Korollos Shalaby is a nationally acknowledged mortgage expert with over 6 years experience as a loss mitigation expert and mortgage finance consultant. He has owned several companies and has been at the forefront of all lending and banking practices since 2006.