NEW YORK ( TheStreet) -- The housing market is "far from being out of the woods," Federal Reserve Chairman Ben Bernanke said Thursday. In a speech at the Operation HOPE Global Financial Dignity Summit in Atlanta, the Chairman said that while the recovery in housing was encouraging, the revival had been uneven and still faced challenges. Home prices have risen for nine consecutive months, residential investment is up 15%, homebuilder sentiment is stronger and housing demand is picking up as a result of historically low mortgage rates. But Bernanke also noted that 20% of mortgage borrowers still remained
underwater , delinquency rates still hovered above 7% and the national homeownership rate is now at a 15-year low. "So, although there are good reasons to be encouraged by the recent direction of the housing market, we should not be satisfied with the progress we have seen so far," the Chairman said. While the continuing weakness in the economy was factor behind the low demand for mortgages, credit also remained too tight. Bernanke cited the Federal Reserve's Senior Loan Officer Opinion Survey on Bank Lending Practices, which indicates that lenders began tightening mortgage credit standards in 2007 and have not significantly eased standards since. The share of home-purchase borrowers with credit scores below 620 has fallen from about 17 percent of borrowers at the end of 2006 to about 5 percent more recently. "Certainly, some tightening of credit standards was an appropriate response to the lax lending conditions that prevailed in the years leading up to the peak in house prices. Mortgage loans that were poorly underwritten or inappropriate for the borrower's circumstances ultimately had devastating consequences for many families and communities, as well as for the financial institutions themselves and the broader economy," Bernanke said. "However, it seems likely at this point that the pendulum has swung too far the other way, and that overly tight lending standards may now be preventing creditworthy borrowers from buying homes, thereby slowing the revival in housing and impeding the economic recovery." Banks have cited a weak economic and housing market outlook,their own real estate exposure, higher servicing costs, escalating putback risk and constraints on personnel amid surging demand for refinancing as reasons behind the lower mortgage originations.
Importantly, "restrictive mortgage lending conditions do not seem to be linked to any insufficiency of bank capital or to a general unwillingness to lend," he said. The Chairman said policymakers had taken steps to ease mortgage credit. The Federal Housing Finance Agency, the regulator of the GSEs, recently announced new rules that will provide mortgage lenders greater clarity about the conditions under which they will be required to buy back defaulted mortgages from Fannie Mae and Freddie Mac or otherwise address origination problems. He made no mention of the qualified mortgage rules, which are still being written by the Consumer Financial Protection Bureau. The industry has claimed that lack of clarity on what constitutes a qualified mortgage has been an impediment to lending. Bernanke also said the Federal Reserve will continue to do whatever it can to support the housing recovery but borrowers need to take some responsibility for their home purchase decisions. " One lesson of the past few years is that the desire to own a home is not enough. Although many foreclosures resulted from job loss or other economic hardships, others occurred because people bought more of a house than they could afford, took out a loan that was not appropriate to their circumstances, or did not manage their resources well. Future homeownership must be built on a more solid foundation. And while much of the responsibility for building that foundation must lie with lenders and with regulators, consumers must do their part as well by acquiring the information and financial knowledge they need to make sound decisions. " The Chairman emphasized financial education and said community organizations such as Operation Hope could be of great help to homebuyers in providing counseling services. -- Written by Shanthi Bharatwaj in New York.