WASHINGTON — Home prices in July fell 5.3 percent nationally compared with a year ago, a government agency said Tuesday, and have now receded to October 2005 levels.
The home price index was down 0.6 percent from June on a seasonally adjusted basis, according to the Federal Housing Finance Agency.
The nationwide decline in home values coupled with reckless lending standards are the driving forces behind rising mortgage defaults and foreclosures, and the credit crisis that has shaken Wall Street to its core.
James Lockhart, the head of the FHFA, suggested Tuesday that mortgage finance companies Fannie Mae and Freddie Mac could loosen lending standards to help more home buyers qualify for a loan and stabilize the market. The government took control of Fannie and Freddie this month.
"I expect any changes to reflect both safe and sound business strategy and attentiveness to the (companies') mission," Lockhart said Tuesday before the Senate Banking Committee. He also said modifying loans for troubled borrowers should be a "high priority."
Lockhart also said he has directed the companies' new chief executives "to examine the underwriting standards and pricing" of Fannie Mae- and Freddie Mac-backed loans.
Over the past year, the companies have tightened requirements and raised fees sharply, making it hard for borrowers with any credit blemishes to qualify for loans.
Lockhart explained the government had little option but to seize control of Fannie and Freddie. Both, he said, were unable to raise money to gird against losses without aid from the government.
Without new money, the only other option was to stop doing new business and shed assets in a weak market. "That would have been disastrous for the mortgage markets, and mortgage rates would have continued to move higher," Lockhart said.