AS THE ECONOMY SLOWLY GRINDS ITS WAY TOWARD RECOVERY, the housing market continues to improve, but evidence shows that the pace of home sales and value appreciation is slowing.

One critical element in a healthy housing environment is low- and moderate-income buyers. These home buyers are typically younger and often purchasing their first home. Many would argue these buyers are the essential foundation to a healthy housing market: In a normal market, first-time home sales account for as much as 45 percent or more of all transactions. Yet first-time home buyers are currently only 29 percent of the market.

The reason why so many potential homeowners are still sitting on the sidelines has been the topic of debate and finger pointing between the mortgage industry and regulatory authorities for several months.

Going way back in time to 2005, the housing market was sizzling; anyone who wanted to buy a home could buy a home. It didn’t matter whether they had the necessary qualifications or even the ability to make the monthly payments. Everyone wanted a piece of the American Dream, and it seemed like home values would never stop increasing.

When the end finally came, it came hard: Millions lost their homes, the finger pointing began, new laws were enacted and new regulations crafted. The pendulum that had swung exceedingly far to the easy side of the equation swung hard to the difficult side — not impossible, but difficult.

The nature of the home lending business is that lenders originate mortgages and then sell them into the secondary market to replenish their funds and originate more loans. Since the credit freeze of 2008, the primary entities buying loans from lenders, accounting for more than 90 percent of all mortgages originated, have been Fannie Mae and Freddie Mac.

Fannie and Freddie were probably the biggest losers in the housing meltdown, losing billions of dollars and being forced into government receivership. But since these entities are backed by the U.S. government, the actual loser was the American taxpayer. Having lost a lot of money, they have been looking for opportunities to get that money back and setting policies to insure similar losses never occur again.

At the heart of the debate about why low- and moderate-income folks are not buying homes is the fear of buybacks. A buyback occurs when Fannie or Freddie determine there is a flaw in the loan and force the lender to buy it back. Liquidity issues may arise for a lender that is forced to buy back too many loans.

In some cases, Fannie has been forcing lenders to buy back loans many years after they were originated. Lenders have been crying foul and tightening standards. The practice of overlays, or lenders setting tougher standards than required by the secondary market, has become common. In some cases, it can be virtually impossible for people to get a loan even though they meet the published criteria. An example of this is with loans backed by the Federal Housing Administration. FHA is a program designed to assist low- and moderate-income folks in buying a home, and for this reason FHA lending standards are purposely lower. According to FHA underwriting guidelines, borrowers may be able to qualify with credit scores as low as 580. Only a handful of lenders nationwide, however, will lend to borrowers with scores below 640.

Balance is sorely needed. The pendulum needs to move toward center. Only then will there be opportunity — and only then will normalcy return.

Guy Benjamin (CAL BRE License #01014834, NMLS 887909) writes a weekly column for The Herald, offering general information on real estate matters. As it is impossible to address all possibilities and variations, he will try to answer individual questions by readers who contact him at 707-246-0949 or guyb@fairwaymc.com.

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