Since the end of the recent economic downturn, credit conditions nationwide have been improving rapidly, but even as other lenders have broadened the standards they require for borrowers to qualify, mortgage financing has still been restricted.

Despite record low interest rates, improving credit conditions, and sky-high housing affordability, many mortgage lenders are still being extremely cautious in extending financing to all but those with the highest credit ratings, according to a report from the Wall Street Journal. In fact, data from Moody's Analytics and Equifax show that close to 90 percent of all mortgages issued last year were to consumers with high credit ratings. Prior to the housing downturn, it was closer to a 50-50 split between borrowers with good and mediocre credit ratings.

Data from the Federal Reserve shows that banks are particularly unwilling to lend to consumers with credit ratings below 620 who are prepared to make a down payment on a property of 10 percent, the report said. A recent poll by the central bank found that 60 percent of financial institutions are "much less likely" to extend this type of credit now than they were in 2006, and another 23 percent are "somewhat less likely" to do so. The remaining 17 percent have kept borrowing requirements about the same.

Now, the Fed is mulling whether it needs to take a more active role in trying to rejuvenate the still-slumping housing market, the report said. However, most agree that it must proceed cautiously.

What can regulators do?
There are a number of opinions on the best way for the Fed to juice activity in the housing sector, the report said. For instance, it has already announced that it plans to keep short-term interest rates close to 0 percent through the end of 2014 at least, and has bought up more than $2.7 trillion worth of bonds to further reduce long-term interest rates.

But at some point, there is also concern that its power to truly influence the market is somewhat limited, the report said. At some point, lender reluctance has to be considered the biggest hurdle.

"This is a big limitation on the potential effects of monetary policy," Charles Evans, president of the Federal Reserve Bank of Chicago, said in an interview last month. "Normally we'd have a very large refinance boom. People would be able to trade in their high-interest-rate mortgage for lower ones and their mortgage payment would go down. That would put more spending power in the hands of anybody in a position to do that. That would increase aggregate demand. That is the way it is supposed to work."

Consumers who are searching for new lines of credit might first want to take the time to check their credit reports. By doing so, they may be able to identify potentially unfair markings that can have adverse effects on their ratings.