Some of the drop in originations isrndue to a weakness in demand because of unemployment, income loss and concernsrnabout the future.  The fall in homernprices keep many homeowners from using equity to move up or, if their mortgagesrnare underwater, from selling their homes. But, Bernanke said, tight credit remainsrnan important factor as well.  Lendersrnbegan tightening mortgage credit standards in 2007 and have not significantlyrneased them since.  </p

Lenders say they originate fewerrnmortgages because of worries about the economy, the outlook for house pricesrnand existing real estate loan exposures. They also mention increases in servicingrncosts, fear they will have to repurchase delinquent loans, difficulty obtainingrnprivate mortgage insurance, and some program-specific issues for FHA loans.  There are also indications that mortgagernoriginations for new purchases may be constrained by processing capacityrnbecause of high levels of refinancing. rnImportantly, Bernanke said, restrictive mortgage lending conditions dornnot seem to be linked to any either lack of bank capital or to a generalrnunwillingness to lend. </p

While some tightening of creditrnstandards was an appropriate response to the housing crash, it seems likely atrnthis point that the pendulum has swung too far the other way, Bernanke said,rnand that overly tight standards might be preventing creditworthy borrowers fromrnbuying homes, thereby slowing the recovery in both housing the economy as arnwhole.  </p

Bernanke named a number of publicrnand private efforts that have been initiated to mitigate the housing crisis suchrnas programs to modify mortgages, refinance underwater mortgages, facilitaternshort sales and reduce the impact of vacant foreclosed homes. Policymakers havernalso taken steps to remove barriers to the flow of mortgage credit such as newrnrules to lessen lenders concerns about mortgage repurchases and regulators havernworked with lenders to try to achieve an appropriate balance between reasonablernprudence and ensuring that qualified borrowers are not denied access to credit.rn</p

To strengthen the overall economicrnrecovery the Federal Reserve has sought to keep both short-term and longer-termrninterest rates historically low and recently announced it would continue to putrndownward pressure on longer-term interest rates until the outlook for the jobrnmarket improves substantially.  The resultingrnhistorically low mortgage rates are directly supporting the housing market byrnputting homeownership within the reach of more people. </p

While the economic recovery andrnregulatory policy affect access to credit for all households, Bernanke said somernpotential borrowers may face the added burden of discrimination and two typesrncontinue to have particular significance to mortgage markets: redlining, inrnwhich mortgage lenders discriminate against minority neighborhoods, and pricingrndiscrimination where minorities are charged higher loan prices than comparablernnonminority borrowers. The Federal Reserve has been vigilant in identifying andrnstopping such abuses, the Chairman said, and remains committed to vigorousrnenforcement of the nation’s fair lending laws. </p

Bernanke said that homeowners also haverna role to play in the larger housing picture. rnEffective financial education–aimed at both youths and adults–canrnprovide people with the knowledge they need to become effective homeowners. “Somernof the skills that prospective homeowners need are relatively basic–forrnexample, knowing how to shop for the lowest interest rate and fees, understandingrnthe difference between a fixed-rate and an adjustable-rate mortgage, and, veryrnimportantly, knowing how to find trustworthy information and advice. Morerngenerally, the decision to buy a home must be consistent with a family’srnlonger-term objectives, needs, and resources. Good financialrnplanning–including effective budgeting, adequate saving, and sensiblerninvesting–can help families maintain homeownership while also pursuing otherrnimportant objectives, such as preparing for retirement or financial emergencies.rnAnd financially informed households will have a better chance to build wealth,rnreducing–in the case of minority households–the large wealth gap that existsrnbetween minorities and other groups.”  Hernpointed to the role of HOPE and similar organizations in helping people gainrnthat knowledge. </p

Acquiring basic information andrnskills about managing their money is important, he said, but there is anotherrnimportant advantage of financial education; an economy with financiallyrnknowledgeable households is likely to be stronger, more equal, and more stable.rn”As such, we all gain from efforts to increase financial literacy.” </p

Still, it is not practical forrneveryone to be a financial expert.  Sometimesrnit is appropriate for an individual to seek professional advice. “For example,rnan individual may be involved in buying a home–a complex and intimidatingrnexperience for many people–only once or twice in a lifetime. That’s why advicernfrom a housing counselor at the right point in the process can make all therndifference.”  Nonprofit organizations canrnhelp prospective homeowners assess their readiness to purchase, provide usefulrninformation about how to search for a home, apply for financing, handle homernmaintenance, and prevent delinquency.  “We have also seen that counseling canrnhelp consumers who are facing delinquency or default. Borrowers in trouble whornreceive foreclosure counseling are relatively more likely to subsequentlyrnbecome current on their mortgage, receive a loan modification, and, ultimately,rnkeep their home.  </p

Financial preparedness is not justrnfor prospective homebuyers. It should be a lifelong undertaking, starting withrnchildren and teenagers. “Organizations around the country–including OperationrnHOPE–help people across a range of ages develop their skills. Despite, orrnperhaps because of, the broader economic challenges we face, it now seems to berna time of creativity and innovation in this field. We are seeingrnexperimentation, knowledge sharing, public-private collaborations, ‘bottom up’rncommunity-driven approaches, and state- and local-government efforts to promoternfamily financial security and opportunity.”</p

After a long and difficult period,rnBernanke said, we are seeing welcome signs of improvement in the housing marketrnwhich will in turn aid the economic recovery while strengthening neighborhoodsrnand increasing the financial well-being of families. Our recovery must be broadlyrnfelt to be complete, and families and communities that were already strugglingrnbefore the crisis must be included in that recovery. As Dr. King is widelyrnquoted to have said, “We may have all come on different ships, but we’rernin the same boat now.”

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