Tight lending standards may slow down home procurement and economy recovery

“Credit worthy” borrowers who are looking to buy homes are having difficulty acquiring loans due to the tighter lending standards of U.S. banks, which, according to Federal Reserve Chairman Ben Bernanke, may also slow down the country’s economic recovery.

Tight lending standards were implemented last 2008 by major banks as a move to solve the nation’s financial crisis. These standards were in accordance with the increase of interest limits of student and direct loans.

However, experts say the stiff implementation of tight lending standards may backfire this year with the rising demand for housing procurement. Since financial stability is still slowly regaining, the economy is seeing the need for loans for home procurement.

More Housing Loans Opportunities

Due to the low home prices, housing loans with lower interest rates continue to invite prospective credible borrowers to engage in buying houses. According to the Commerce Department, new homes are sold at a 389,000 annual pace in September. This data beats the maximum in more than two years.

However, borrowers who qualify for housing loans are having difficulty acquiring loans through traditional lending institutions such as banks, explained Bernake during the Operation HOPE Global Financial Dignity Summit in Atlanta. And this is mainly due to the stricter borrowing guidelines.

The Operation HOPE is a non-profit organization that aims to educate lower and middle income Americans about the economy as well as to give them financial counselling for free.

Experts believe that the tight lending standards may backfire and may result in slow economic recovery. The Federal Reserve Department will continue to find strategies to improve home mortgage availability for lower to middle income American, explained Bernake.