U.S. lenders saw loans fall by the largest amount since the government began tracking such data, suggesting that nervousness among banks continues to hamper economic recovery.

The decline in total loans showed how banks remain reluctant to lend, despite the hundreds of billions of dollars the government has spent to prop up ailing banks and jump-start lending. The issue has taken on greater urgency with the U.S. unemployment rate hitting 10.2% in October, even as the economy appears to be stabilizing.

The U.S. recession might be over, but the country and its bloodied banking sector are struggling to cope with overstretched families and billions in soured loans.

It all points to a troubled recovery for the world’s biggest economy, where the crisis began and flashed around the globe.

U.S. banks got into trouble lending too much to consumers during the boom years earlier this decade. Consumers used credit to finance a buying binge – for homes, cars and the like – and then banks watched helplessly as homes and other asset prices collapsed, starting in 2007.

Banks have tightened up their lending standards and no longer offer the kinds of no-strings-attached mortgages and other loans that were common during the real estate boom.

NEW YORK, Nov 5 (Reuters) – U.S. mortgage rates fell below 5 percent for the first time in three weeks, a key level that may boost home home loan demand and help the hard-hit housing market recover, a closely watched mortgage survey showed Thursday.

Interest rates on U.S. 30-year fixed-rate mortgages averaged 4.98 percent for the week ending Nov. 5, down from the previous week’s 5.03 percent, according to a survey released on Thursday by home funding company Freddie Mac.

The Senate and House are poised to agree on a compromise measure to extend unemployment benefits that also would expand a popular $8,000 tax credit for homebuyers, despite a recent government report on extensive mistakes and suspected fraud in the program.

Under the new legislation, individuals with income up to $125,000 a year and couples earning up to $225,000 would be eligible. The current income limits are $75,000 for individuals and $150,000 for couples. Under both the House and Senate versions, smaller amounts are available to people of slightly higher incomes until the credit phases out.

The expanded homebuyers’ tax credit was attached to a bill intended to extend unemployment compensation for up to 20 weeks for people who have been out of work for long periods. Another amendment would sweeten a tax break for businesses with net operating losses in 2008 and 2009.