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30-Yr Fixed Hampers Housing Recovery

Let me just preface that the study I'm about to discuss was funded by the Mortgage Bankers Association, the folks who represent mortgage bankers of course, so keep that in mind; this is not to say they don't bring up a valid argument.

"Mortgage features that are restricted in the Dodd-Frank Billsuch as longer terms, interest-only periods and flexible payment designs are quite common in other countries and are not associated with higher rates of default."

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AP

There's your headline.

That headline is of course meant to argue that perhaps some of the new restrictions recently passed by Congress to protect borrowers are going to hamstring lending going forward and slow the housing recovery.

Interesting that this study comes out the same day that another industry player, online real estate sale site Zillow.com, puts out a surveyshowing that 1/3 of Americans today can't qualify for a mortgage and half of Americans would not be eligible to get those low low rates on the 30-year fixed that we're always talking about.

But back to the Bankers.

Their surveylooked at mortgage mechanics in 12 countries and found that while the U.S. used to offer "one of the richest sets of mortgage products available," the market has now shifted to primarily fixed-rate loans. In 2009, according to the study, 95 percent of new loans made in the U.S. were fixed-rate, compared to 1 percent in Spain, 10 percent in Canada and 22 percent in Japan. The study finds that default rates on variable-rate loans are much lower in other countries and therefore concludes that it's not the loan product itself but "a mismatch between borrowers and particular loan designs," that caused us all our woes.

Bottom line: Bad underwriting.

So don't throw out the baby with the bathwater, right?

The loans aren't bad; the borrowers just never should have qualified.

Okay, I can buy that, but now we've gone 180. Now we're all about record low interest rates on the 30-year fixed, and that's all we're selling. The trouble is that we're not selling it to everyone.

Zillow.com looked at 25,000 loan quotesand purchase requests during the first half of September and found that folks with a FICO score of 620 or lower looking for a 30-year fixed got no offers.

That's even when they offered 15-25 percent down on the home.

1/3 of Americans fall into this category, and that number is growing, as millions of troubled borrowers short sell their homes or go into foreclosure.

Their credit scores drop and their ability to re-enter the housing market is gone.

Am I advocating going back to the hey-days of wild and reckless lending?

Of course not.

But how are we supposed to get the housing market back up and running again if so many potential buyers can't get a loan they can afford, and the only loans out there offer borrowers very little flexibility for investing not to mention little return for the non-government investors we need to fund the mortgage market?

Questions? Comments? RealtyCheck@cnbc.com And follow me on Twitter @Diana_Olick