Economists call for mortgage standards to loosen

A number of economists say that while they can understand why banks tightened their lending standards following the housing crisis, lenders have now tightened their grip too much, and are restricting the flow of mortgages so much that it's holding back the economy.

Doug Duncan, chief economist at Fannie Mae, told the Wall Street Journal that the real estate market has played a central role in each of the previous economic recoveries. But coming out of this recession, its effect has been nearly negligible.

Making matters worse, the market currently has a backlog of foreclosures to work through, which have dragged down home prices nationwide. But lenders remain focused on reducing risk.

"Right now, we're in that vicious cycle where we tighten, which makes things worse, so we tighten, which makes things worse," Bob Walters, chief economist at Quicken Loans, told the WSJ. "How do you get out of that cycle? Folks in government are going to have to stand in and make some calls."

Even in one of the strongest markets in the country, Houston foreclosures still play a major role. According to CoreLogic, the city currently has a 7.3-month supply of distressed properties at the current sales pace.