A recent analysis from Goldman Sachs revealed that despite loosening standards, securing a mortgage is still a considerable challenge.

In the wake of the housing bubble collapse and the subsequent economic downturn, concerned homebuyers and professionals from a bevy of affected industries are beginning to pose the question: Are mortgage lending standards too tight?

To answer the question, economists from Goldman Sachs conducted an analysis measuring the current availability of credit compared with normal levels observed in 2000-2002. While the report found lending standards had eased over the last two years, researchers discovered access to credit is still significantly limited.

Tougher By Nearly Every Measure

In nearly every category, Goldman Sachs found that credit standards are more restrictive than pre-bubble levels. The only exception were loan-to-value ratios, which while essential to the lending process, mostly reflect the borrower’s down payment.

Credit standards for private and non-traditional lending hover only slightly below normal levels, but all cash and credit scores remain significant barriers to financing.

A Market Divided

The tightening of lending standards following the economic crisis was all but an inevitably, which is why it surprised no one when lenders started turning down mortgage applications. However, Goldman Sachs Vice President Hui Shan warns that if the industry continues moving along this trajectory, things could get out of hand.

“This is a potential problem for the housing market because the next phase of the housing recovery depends crucially on mortgage credit availability,” Shan says.

If the problem was simply a matter of relaxing standards, the issue might be easily resolved, but as Goldman Sachs points out, the market has recently bifurcated along income lines, with credit being more readily available for households with stable and easy-to-verify incomes. As a result, Jordan Rappaport of the Federal Reserve Bank of Kansas City and Paul Willen of the Boston Fed wrote in a recent paper titled “Tight Credit Conditions Continue to Constrain the Housing Recovery” that “rather than cutting off access to mortgage credit for a subset of households, ongoing credit tightness more likely takes the form of strict underwriting procedures applied to all households.”

Right now, a household with a stable income, mid-600s credit score and a 3.5 percent down payment can widely find approval for a mortgage – even if Federal Housing Administration mortgage insurance is more expensive – but buyers with irregular incomes, like salesmen who rely on commissions, or buyers going after harder-to-underwrite properties, such as condos, won’t find that same luxury.

Currently, the FHA is working to give lenders a better sense of what constitutes an approved borrower, but Shan told The Wall Street Journal that she still expects credit easing to take a number of years.