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Lenders Predict Heavier Regulation, Tighter Standards

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Within the next few months, some new mortgage regulations designed to protect consumers from certain lending practices will likely go into effect, but home loan issuers say that if that happens, they will likely have to tighten restrictions on credit eligibility.

Many housing and financial experts – including Federal Reserve chair Ben Bernanke and U.S. Secretary of Housing and Urban Development Shaun Donovan – say that one major problem hindering recovery in the real estate industry is that lenders are maintaining too tight a grip on credit, according to a report from Bloomberg News. However, lenders now say that if rules related to qualified mortgages and qualified residential mortgages are pushed through early next year, they will have to continue tightening those lendingstandards, rather than continue the slow expansion seen in the last several months.

Data from the tracking firm Ellie Mae shows that in September alone, the average credit score for a borrower who obtained a new mortgage was 750, placing these people in the top 40 percent of consumers nationwide, the report said. And that was with that borrower giving lenders an average down payment of 22 percent.

Given that home values rose 1.3 percent in the third quarter alone, according to Zillow, experts are worried that the combination of higher prices and tighter credit could further restrain the burgeoning housing recovery, the report said. Further, many consumer advocates say that the lenders’ threats of tighter credit are both unlikely, and obfuscating to regulators’ efforts to get the lending industry back to a reasonable equilibrium that works for all parties involved.

“Unfortunately, the mortgage lobby is the boy who cried wolf,” Julia Gordon, director of housing finance and policy at the Center for American Progress, told the news agency via email. “They fight any and every regulation and routinely insist that the [fill in the blank] rule will increase the cost of credit or reduce access to credit, which makes it difficult for the regulators to figure out when that’s actually true.”

Many have noted that the housing market’s recovery is still rather precarious, as while prices and consumer sentiment are expected to improve in the coming year, experts also caution that even slight changes to the overall economy could endanger progress made this year.

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