As the housing market continues to recover from the Great Recession, many banks are still showing the effects in the form of tightened borrowing requirements.

“You have to be Mother Teresa to get a re-fi,” said Thomas Smith, assistant professor in the practice of finance at the Goizueta Business School, who referred to the necessity of having an 800 FICO score.

In recent months, there have been consistent reports across the country of pockets of improvement in local housing markets.

  • Housing starts in June were up nearly 16 percent over June and 22 percent in the last year, the Commerce Department reported.
  • In August, the Associated Press reported a wave of buying in the West and Northeast.
  • The Commerce Department said new-home sales were up 18 percent in August, and newly constructed homes sold at the fastest rate since May 2008.

And while lending has not yet loosened, [highlight]the average mortgage rate in late October dropped to 3.92 percent for a 30-year loan[/highlight], while the average 15-year mortgage fell to 3.08 percent from 3.18 percent.

“All is not perfect in the housing market but things are certainly better today than they were about one year ago,” Dan Greenhaus, chief strategist at BTIG brokerage, was quoted as saying by the AP.

Yet in mid-November, Fannie Mae’s latest U.S. Economic and Housing Market Outlook said gains on housing prices would continue to drop, from 9.3 percent in 2013, to 4.5 percent this year, to a projected three percent in 2015.

The National Association of Home Builders/Wells Fargo builder sentiment index climbed in September to 59, the highest reading since November 2005. Readings above 50 indicate more builders view sales conditions as improving.

Still, an attitude has yet to change among lenders, Smith said.

Because banks lost so much money during the Recession, their revenue focus changed from originating mortgages to buying distressed assets from other banks, Smith said.

And while inventories are down, there’s little motivation for banks to change their post-Recession practices.

“I don’t think they’ll move until all of the distressed assets are moved,” Smith said.

In the case of a homeowner looking to re-finance to eliminate private mortgage insurance, Smith said banks don’t even believe their own appraisers.

But a re-appraisal of all loans was needed — possibly through government incentive programs — and it would have kept some people in their homes instead of leaving them with reduced value, which causes collateral damage in neighborhoods.

Relying on credit scores, which could have been damaged in the wake of a job loss, is also bruising the market.

The market will work itself out, and eventually re-balance housing inventories, Smith said, but that could take another eight years.

“These aren’t bad people,” Smith said. “They suffered as a result of the Recession. They get a good job, but their credit would show late payments, and a bank wouldn’t make the deal… That does nothing to support the housing market.”

People who cannot obtain a mortgage re-finance from their bank are not just regular Joes. Former Federal Reserve Chairman Ben Bernanke recently admitted during a speech that he couldn’t re-finance his District of Columbia home.

While Bernanke reportedly makes $250,000 per speech, and signed a lucrative book deal, his irregular income and change in employment are believed to be the reasons why the bank won’t give him a loan.

“I think it’s entirely possible” that lenders “may have gone a little bit too far on mortgage credit conditions,” Bernanke was quoted as saying according to Bloomberg. “The housing area is one area where regulation has not yet got it right. I think the tightness of mortgage credit, lending is still probably excessive.”