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Mortgage rates are at record lows and the current rate for a 30-year fixed mortgage stands at 3.34%, according to Zillow Mortgage Rate Ticker. But banks are approving fewer loan applications and have tightened lending standards, resulting in a delayed housing recovery.

A new government report found that banks processed 7.1 million mortgages in 2011 — a 10% drop from 2010 — and the lowest level in 16 years. Lax reporting standards and a willingness to provide mortgages to homebuyers who could not afford them turned banks into villains when the housing bubble crashed. Now, banks have become more cautious with their money and are screening applicants with increased scrutiny, a major headwind for a still-weak housing market, says Kermit Baker, a senior research fellow at Harvard University's Joint Center for Housing Studies.

[Related: Getting a Mortgage Shouldn't Be This Hard: Housing Finance Gets 'Taken to Task']

"A lot of banks are ignoring the housing market these days….and avoiding real estate investments," he says in an interview with The Daily Ticker. Banks need to enforce documentation and down payment rules but "the standards are too high. I think [banks] have probably moved too far."

Baker contends that banks' strict lending practices have become the dominant issue in the housing market. The Fed's latest measures to stimulate the sluggish economy — including its decision to purchase $40 billion of mortgage-backed securities every month — was designed to free banks and other lending institutions to make more loans.

[Related: Bernanke's Bazooka: Open-Ended QE3 Is "Very Aggressive"]

More quantitative easing "will help a little" but mortgage rates are not holding back the market," Baker says. "Banks are nervous to get back in this market and low rates won't change that dramatically."

Housing demand has picked up over the past year but a strong economic recovery cannot take place without a "housing participation," Baker notes. Americans want to buy homes and banks need to provide the funds to make these realities happen, he says.

[Related:More Good News on Housing But Hold the Champagne]

The National Association of Realtors reported Wednesday that existing home sales in August rose 9.3% in one year to an annualized rate of 4.82 million units. The median price of a home sold in August was $187,400, a gain of nearly 10% from August 2011.

Tell us what you think! Is it too hard to get a home loan these days?

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