Bernanke: Banks are stronger, but mortgage lending is sluggish

By Don Lee

May 10, 2012 12 AM PT

WASHINGTON -- American banks have made significant strides in boosting their financial health since the recession, but the same cannot be said of their lending activity, especially for home mortgages, Federal Reserve Chairman Ben S. Bernanke said.

In a speech Thursday, the Fed chairman gave America’s banking system a generally clean bill of health, citing stronger capital and leverage ratios, better credit quality and improvements in a number of “key systemic risk measures.”

“Overall, they present a picture of a banking system that has become healthier and more resilient,” he said in prepared remarks delivered by satellite to a conference in Chicago.

So why aren’t banks making more loans?

Apart from “navigating an economic recovery that has been halting at times,” Bernanke said, banks have imposed tighter lending policies while demand for loans has been weak and credit quality of potential borrowers remains impaired.

Even so, he said, many businesses and consumers are finding it easier to borrow than they did a few years ago. The Fed’s April survey of loan officers suggests lending standards for commercial real estate loans have eased for the first time since 2005, he said, and bank financing for cars has been solid.

But the one big exception is home mortgage lending, which Bernanke called “particularly sluggish.”

“To be sure, a return to pre-crisis lending standards for residential mortgages wouldn’t be appropriate,” he said. “However, current standards may be limiting or preventing lending to many creditworthy borrowers.”

Bernanke doesn’t see things getting much better for home borrowers any time soon. Given the mediocre recovery and the uncertainty surrounding Fannie Mae and Freddie Mac, among other things, he said, “this situation will be difficult to turn around quickly.”

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