A crack down on the gloomy and shaky storm that hit the housing market in the mid-2000's, has given buyers a step closer to solving the markets issue.
The downfall of the economy has left many buyers and potentials out in the cold, because they are unable to obtain a home mortgage. This is because lenders are holding back on potential lendees.
According to the latest survey from the National Association of Realtors, home sales could boost up if they returned to "reasonably safe and sound lending standards."
Chief Economist Lawrence Yun said the U.S. economy would benefit more if mortgage lending conditions went back to its normal state.
"Sensible lending standards would permit 500,000 to 700,000 additional home sales in the coming year," he told Realty Times.
"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."
Today's buyers face tighter lending standards than they did, before the sour turn of the economy. Lenders take too long to approve applications and the qualifications needed to be approved are stricter, causing housing deals to decrease and the number of cancellations to increase. A handful of lenders are asking for a 20 percent down payment as well as lengthy background checks from potential lendees, something that is impossible for many buyers.
The NAR survey revealed that 53 percent of the approved loans in August went to borrowers with credit scores above 740. In comparison, only 41 percent of loans backed by Fannie Mae had FICO scores above 740 during the 2001 to 2004 time period, while 43 percent of Freddie Mac-backed loans were above 740, according to Realty Times.
Although some would argue that lenders are being too strict, others say that they have the right to do so. The high foreclosure numbers that heaped during the recession has motivated today's buyers to prove their worthiness.
Home buyers in recent years have been highly successful according to Yun. There has been a tremendous decrease in the 12-month default rates since 2009.
Yun said prices are now moving in the right direction.
"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. A loosening of the overly restrictive lending standards is very much in order," he said.
