Fed chief says tight credit hindering recovery

The housing market, which helped pull the economy into recession, is slowly gaining momentum, but credit standards remain too tight and could be constraining the recovery, Federal Reserve Chairman Ben Bernanke said Thursday at a conference in Atlanta.

At the Operation HOPE Global Financial Dignity Summit, Bernanke also said the economic collapse disproportionately hurt lower-income people and minorities, and “policymakers must take into account how their decisions affect the least advantaged, not just the economy as a whole.”

The Augusta-born Bernanke said the recession has undone 15 years in homeownership gains in minority and low-income communities, and new home loan originations since the recession have fallen to a greater degree in nonwhite and lower-income neighborhoods.

Poor lending standards contributed to the economic collapse, and tightening standards in response was appropriate, Bernanke said, but it appears “the pendulum has swung too far the other way,” denying some creditworthy borrowers.

Bernanke said regulators would continue to examine ways to broaden credit availability, a theme of the two-day conference.

In his speech at the Georgia International Convention Center near Hartsfield-Jackson International Airport, the Fed chief did not mention the recent presidential election or efforts by Congress and the White House to avert the so-called “fiscal cliff” of looming automatic spending cuts and tax increases.

Home prices nationally have climbed for nine straight months, and sales are stronger, buoyed by historically low interest rates, he said. But homebuilding remains slowed and nearly one-in-five borrowers owe more than their houses are worth.

The latest round of Fed economic assistance, known as quantitative easing, includes mass purchases of mortgage bonds as a way of keeping interest rates low and encouraging borrowing.

“They are doing everything they can to make housing better,” said Rex Macey, chief investment officer with Wilmington Trust in Atlanta.

In metro Atlanta, home prices ticked up in August for the fifth-straight month, according to one closely watched index, but prices remain lower than January 2000 levels. Foreclosures, while decreasing from a year ago, remain high.

On Wednesday, Georgia State University’s Economic Forecasting Center predicted slow job growth for Georgia in 2013, with employment seeing greater gains in 2014.

William deButts, chief executive of Atlanta-based Glenmore Advisors, said he sees the economy starting to pick up at the tail end of 2013, “and it will be driven by a housing recovery.”

Banks tightened lending standards as they were forced to shed bad loans from their books and cope with a host of financial regulatory reforms, deButts said. Lenders also remain jittery about an uncertain job market, flat wages and economic turmoil in Europe.

Bernanke also touched on lending discrimination, saying the Fed “has been vigilant” in finding and stopping abuse. He specifically mentioned “redlining,” when lenders deny credit in minority areas, and “pricing discrimination,” sometimes called reverse-redlining, when lenders charge more in minority areas than they would in similar majority-white communities.

Bernanke’s speech comes about a month after Cobb, DeKalb and Fulton counties sued British banking giant HSBC, alleging predatory practices that caused hundreds of millions of dollars in damage through lost tax revenue from eroded property values that followed the housing collapse.

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