Fed's Duke says sustained housing recovery under way

WASHINGTON Thu May 9, 2013 3:38pm EDT

Federal Reserve Board Governor Elizabeth Duke speaks on ''Community Banks'' before the Southeastern Bank Management and Directors Conference at the Gwinnett Center in Duluth, Georgia, February 5, 2013. REUTERS/Tami Chappell

Federal Reserve Board Governor Elizabeth Duke speaks on ''Community Banks'' before the Southeastern Bank Management and Directors Conference at the Gwinnett Center in Duluth, Georgia, February 5, 2013.

Credit: Reuters/Tami Chappell

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WASHINGTON (Reuters) - A top Federal Reserve official said a recovery has taken root in the U.S. housing market but that resolving uncertainty over mortgage regulations would make the recovery stronger.

Six years after its far-reaching collapse, the housing market started to turn the corner last year with prices rising, inventory tightening and low interest rates enticing buyers.

"A sustained recovery in the housing market appears to be under way," Elizabeth Duke, a board member at the Fed, said in a speech on Thursday.

However, Duke said it still appeared that many borrowers were having difficulty obtaining loans, and that uncertainty over regulations was making lenders shy about granting mortgages. She said it remained unclear whether much of that uncertainty would be lifted anytime soon.

"The path to easier credit conditions is somewhat murky," Duke told the Housing Policy Executive Council in Washington.

Duke said lenders could grow more comfortable granting mortgages as the broader economic recovery advances and as banks' capacity to process loan applications catches up with the recent increase in demand.

But regulations that force banks to repurchase some of the defaulted loans they sell to government-sponsored mortgage insurers also make them less likely to extend mortgages to people with lower credit scores, Duke said.

She also said new regulations aimed at protecting borrowers from abuses at the hands of banks could also restrain access to credit.

(Reporting by Jason Lange; Editing by Chizu Nomiyama and James Dalgleish)

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