Despite the rebound in the housing market, it remains difficult for many buyers to secure a mortgage. Originations slumped 90 percent between 2007 and 2012 for borrowers with credit scores falling in the 620-680 range, compared to a 30 percent drop for those with credit scores over 780. Federal Reserve Gov. Elizabeth Duke acknowledges that diluted demand is responsible for part of that decrease, but new households have been hit especially hard by tighter mortgage standards given that credit scores among younger borrowers generally are more than 50 points lower than those of older borrowers. Although concerns among lenders about future price declines and job losses are blamed for mortgage standards remaining so tight, Duke said the central bank's campaign to hold down interest rates also has played a role by eliminating the need for lenders to "pursue harder-to-complete or less profitable loan applications" when low rates have generated steady refinancing business. Even if banks begin to compete for more purchase loans when mortgage rates rise and experience a boost in confidence as home prices trend upward, Duke warned that concerns about buy-back demands from Fannie Mae and Freddie Mac, new federal and state regulations that have increased mortgage servicing costs, and new federal regulations that aim to protect borrowers from unaffordable loans will continue to deter lenders from loosening credit standards. While some observers believe it makes sense to give mortgages only to people with the best credit scores, Duke said that such a move could hamper the economic recovery. She explained, "Without first-time homebuyers, the move-up market will be sluggish, new and existing home sales will be more subdued, and purchase mortgage volumes will return only slowly."
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