difficult at times because of lack of financing, although the gses have just announced a pilot program to facilitate such purchases. in addition, many reo properties may not be appropriate for reo - to - rental programs, either because they are in very poor condition or because they are not part of a sufficiently large cluster of properties to allow for economies of scale in their management. for a discussion of some of the tradeoffs that policymakers might take into account in considering whether to expand these efforts to reduce the overhang of empty and foreclosed homes further, see board of governors, “ the u. s. housing market ” ( see note 1 ). the inventory of reo for sale is roughly 140, 000 units above its 2004 level, while the inventory of vacant homes for sale is roughly 600, 000 units above its 2004 level, per federal reserve staff calculations based on data from corelogic and the housing vacancy survey. more precisely, federal reserve staff estimate that about 75 percent of reo properties are in neighborhoods where the median house values and incomes are greater than 80 percent of the medians for the metropolitan area. data on median home values, income, and commute times are from the 2000 census, available on the u. s. census bureau website at www. census. gov / main / www / cen2000. html. bis central bankers ’ speeches nevertheless, reo - to - rental programs appear to have some potential for success. as of early november 2011, about 60 metropolitan areas each had at least 250 reo properties for sale by the gses and the fha – a scale that could be large enough to realize efficiency gains. 17 atlanta has the largest number of reo properties for sale by these institutions, with about 5, 000 units. the next - largest inventories are in the metropolitan areas of chicago ; detroit ; phoenix ; riverside, california ; and las vegas, each of which have between 2, 000 and 3, 000 units. as i noted, not all reo properties are appropriate for rental, but many do appear to be physically adequate and potentially attractive to tenants. the number of properties suitable for rental is bound to increase, as the number of properties currently in the foreclosure process is more than four times the number of properties in the reo inventory. other options can help with foreclosed houses that have low value and are in poor condition, homes that are not likely to be dealt with adequately through the private market. for

of economic research, march ), www. nber. org / papers / w16848 ; and, john v. duca, john muellbauer, and anthony murphy ( 2011 ), “ house prices and credit constraints : making sense of the u. s. experience ( pdf ), ” research department working paper 1103 ( dallas : federal reserve bank of dallas ), http : / / dallasfed. org / research / papers / 2011 / wp1103. pdf. for more discussion of the effects of low household equity on the ability of homeowners to improve their financial positions, see christopher mayer, karen pence, and shane m. sherlund ( 2009 ), “ the rise in mortgage defaults, ” journal of economic perspectives, vol. 23 ( winter ), pp. 27 – 50. bis central bankers ’ speeches losses while continuing to lend. on the margin, though, some lenders might be inclined to respond to losses by tightening credit terms or being more cautious about extending loans rather than by raising additional capital. 7 in short, housing problems affect the homebuilding industry, of course, but also have much broader effects – on neighborhoods and communities, on homeowners, on the financial system, and on the vitality of the economy as a whole. this observation underscores the importance of efforts to improve the condition of the housing market. availability of mortgage credit so why has the recovery in housing been so slow? one important factor is restraints on mortgage credit. since its peak in 2007, u. s. home mortgage credit outstanding has contracted about 13 percent in real terms. in prior recoveries, mortgage credit had begun to grow four years after the business cycle peak – but not this time around. 8 one reason for the very slow recovery in mortgage credit, despite monetary policy actions that have helped drive mortgage rates to historically low levels, is that many lending institutions have tightened underwriting conditions dramatically, relative to the pre - recession period. 9 given the lax standards during the credit boom, some tightening was doubtless appropriate to protect consumers and ensure lenders ’ safety and soundness. however, current lending practices appear to reflect, in part, obstacles that are limiting or preventing lending even to creditworthy households. for example, mortgage originators appear to be reluctant to extend credit to some potential borrowers who could meet the underwriting standards currently set by the governmentsponsored enterprises ( gses ). indeed, fewer than half