First, fees on loans provided by the Federal Housing Administration are "extraordinarily high," Smith said. FHA loans are considered "the traditional form of purchasing a home" for a first-time homebuyer, so the high fees are an obvious headwind, he said.
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Second, underwriting methodology, not to be confused with underwriting standards, is a "necessary change" to catalyze first-time homebuyers, Smith said.
"Banks have a very difficult time adjusting to the new environment, which holds them accountable even for technical defaults, so the putback risk is very high. Lenders know it and they've been reluctant to lend to first-time buyers for that reason," Smith said.
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"The first-time buyer, traditionally, is a higher-risk buyer," he said. "But with some, I think, basic considerate underwriting we can get the first-time homebuyer back."
Earlier this week, purchases by first-time homebuyers fell to the lowest level in nearly three decades—just 33 percent this year, down from 38 percent a year ago, according to an annual survey of homebuyers by the National Association of Realtors. The long-term average, dating back to 1981, shows that 4 out of 10 purchases are by first-time buyers.
—CNBC's Diana Olick contributed to this report.