Why Hasn’t the Mortgage Business Rebounded?

Nick Timiraos notes today that Federal Reserve governor Elizabeth Duke is worried about the fact that after years of being too loose, mortgage standards may now be too tight:

So why haven’t mortgage credit standards eased up even a little bit, as they have for other consumer loans such as credit cards and autos? First, home prices have fallen so sharply that lenders are worried future price declines and job losses will leave them with more defaulted mortgages.

But Duke noted another more surprising cause: the Fed’s campaign to push down interest rates means lenders haven’t had to work very hard to drum up business. Together with federal efforts to ease refinancing rules, low rates have produced a surge of refinancing business. This has delivered a steady stream of high-quality, low-risk borrowers in an industry that already has shrunk significantly. Capacity-constrained lenders have “less incentive to pursue harder-to-complete or less profitable loan applications,” said Duke.

I dunno. I was chatting with a friend the other day who’s trying to refinance his house. You’ll have to take my word for this, but he’s basically about the most reliable, creditworthy, upper middle class person you could hope to meet. Good income, reliable job, longtime bank customer, etc. etc. And yet, his bank keeps finding things to be nervous about. This should be a slam-dunk refi, but it keeps dragging out.

It’s just an anecdote. But it makes me wonder if even the refi biz is quite as healthy as Duke suggests. If you have any horror stories of your own, feel free to share them in comments.