Federal Reserve Chairman Ben Bernanke said Thursday that the Fed remains "quite concerned" about unemployment and that the US housing market remains a "critical challenge" for the country.
With the unemployment rate still at 7.9 percent in October, and seven percent of mortgage borrowers in default on loan payments, turning the housing market around is important for strengthening the economic recovery, he said.
In a speech in Atlanta on the housing market, Bernanke said there were still two million houses in foreclosure and that 20 percent of homeowners remained "underwater" on their homes -- that is, they owe more on the mortgage than the home is worth.
But he also said that the rebound in the market is being held back by banks' having overly tightened lending standards, so that borrowers with less than average credit ratings cannot obtain home loans.
Despite the Fed's efforts to force down interest rates to encourage banks to lend, "lenders began tightening mortgage credit standards in 2007 and have not significantly eased standards since," Bernanke said.
"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."
"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."
"The housing sector is far from being out of the woods," he said.
He also said that African-Americans and Hispanics are finding it much more difficult than other groups to get home loans, exacerbating the economic problems in minority neighborhoods.
"The contraction in mortgage originations has been particularly severe for minority groups and those with lower incomes."