Return to the Comfortable Middle

Restrictive underwriting standards and high jumbo rates could prevent a housing recovery.

March 1, 2009

Buyers have a rare moment of opportunity this year. With mortgage rates at 50-year lows, the time is just right to make that first home purchase or to trade up.

But because overly stringent loan underwriting standards have replaced standards that were far too lax during the boom years, people who have decent credit are often finding themselves shut out when they apply for a loan.

Higher-income households, particularly those in high-cost areas where jumbo loans are common, also face challenges because the spread between conforming and jumbo loans remains stubbornly high.

We see the result of this spread in our monthly sales figures. While sales of homes priced under $400,000 held steady last year, sales of homes over $750,000 declined 47 percent.

Though we can be hopeful that this year’s spring selling season will be better than last year’s, the stringent lending standards and continuing high jumbo rates could choke off a recovery that would otherwise take hold.

For that reason, lending must be brought to a middle ground: Standards must be neither too lax nor too stringent, and interest rates on jumbo loans must be brought down in the same way that conforming loan rates have been.

As a REALTOR®, you play a crucial role in helping the market return to this comfortable middle.

Let Congress know that conforming loan limits for high-cost areas, which last year were raised temporarily to $729,750 but are now $625,500, must be returned to the higher level permanently. And Congress must make money available directly to help reduce preventable foreclosures.

Tell Congress to do what’s right and fair by using money from its pot of rescue funds, which so far has been going to banks, to help the country’s 75 million home owners and 6 million home buyers.

Lawrence Yun
Chief Economist and Senior Vice President of Research at the National Association of REALTORS®

Yun oversees and is responsible for a wide range of research activity for the association including NAR’s Existing Home Sales statistics, Affordability Index, and Home Buyers and Sellers Profile Report. He regularly provides commentary on real estate market trends for its 1.3 million REALTOR® members.

Dr. Yun creates NAR’s forecasts and participates in many economic forecasting panels, among them the Blue Chip Council and the Wall Street Journal Forecasting Survey. He also participates in the Industrial Economists Discussion Group at the Joint Center for Housing Studies of Harvard University. He appears regularly on financial news outlets, is a frequent speaker at real estate conferences throughout the United States, and has testified before Congress. Dr. Yun has appeared as a guest on CSPAN’s Washington Journal and is a regular guest columnist on the Forbes website and The Hill, an “inside the beltway” publication on public affairs.

Dr. Yun received his undergraduate degree from Purdue University and earned his Ph.D. from the University of Maryland at College Park.