NEW YORK (
MainStreet ) -- A Federal Reserve Governor says the U.S. housing market is mending, but would do a lot better if much-needed reforms were enacted, chief among them loosening lending standards by banks and mortgage lenders. Until that happens, expect a weak housing recovery. Elizabeth Duke, a Federal Reserve Board Governor, spoke to a group of realtors at the National Association of Realtors Midyear Legislative Meetings & Trade Expo in Washington, D.C. on May 15. In her speech, Duke warned the real estate industry that a sustainable housing recovery depended on action from Congress and federal regulators to stabilize the U.S. mortgage market -- no sure thing, given the "difficult decisions" that had to be made but are often ignored by politicians. "It is difficult to think of a single prescription that by itself will generate a sustainable recovery in housing," Duke said. "At the same time, I do see policies that I believe will help reduce the shadow inventory of houses in the foreclosure pipeline. I also see policy actions that could be taken to improve credit availability for potential homebuyers and, in turn, demand for houses." Duke notes demand is weak for home purchases, as consumers either sit on the sidelines waiting for prices to fall further, or won't pull the trigger because of fears they may lose their job and won't be able to make their home payments. But a larger reason may be that otherwise credit-worthy consumers can't get a loan to buy a home. "Unfortunately, some buyers who would like to purchase a home are unable to do so because they are unable to obtain a mortgage," she says. "According to the Federal Reserve's quarterly Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS), underwriting standards for residential mortgages tightened steadily from 2007 to 2009, and they do not appear to have eased much since then." Duke adds that the median credit score for qualified home borrowers rose from 700 in 2006 to 760 in 2009, just as the U.S. was gripped by a major recession. But that 760 figure pretty much has not budged three years later, as banks just aren't willing to loan money to consumers unless they have picture-perfect credit. She's not blaming mortgage lenders, but Duke does say that conditions are getting better, and that banks and lenders may need a push to amp up credit for homebuyers. "Borrowers are more likely to default when they lose their jobs or when their houses decline in value," she explains. "So as long as unemployment remains elevated and further house price declines remain possible, lenders will be cautious in setting their requirements for credit, and rightfully so. But these factors should ease as the economic recovery gains steam and the trajectory for house prices appears more certain." Banks and lenders can increase efforts to provide loan modifications, green light short sales, and speed up foreclosures -- each of which would help the housing market. But it's policy makers in Washington that can really spur upward growth in the housing market, Duke says. "Perhaps the most important solution that I am suggesting today is that policymakers move forward with the difficult decisions that will affect the future of the mortgage market," she told her audience. "To be sure, important issues need to be addressed and hard questions remain to be answered. Until these tough decisions are made, uncertainties will continue to hinder access to credit, the evolution of the mortgage finance system and the ultimate recovery in the housing market. I don't want to diminish the importance of any individual policy decision, but I do believe that the most important prescription for the housing market is for these decisions to be made and the path for the future of housing finance to be set. It's time to start choosing that path." So call it a Catch-22 -- the housing market can't really take off until the economy improves, but it's up to both the private mortgage industry and public policy makers in Washington to adopt measures to speed that recovery along. The question is -- who wants to go first? Until consumers get a good answer to that question, don't expect much growth in the U.S. housing market. Follow TheStreet on Twitter and become a fan on Facebook.