Three Fed Officials Urge Action to Boost Housing
By NICK TIMIRAOS and LUCA DI LEO
Top Federal Reserve officials ramped up their call for more forceful government action to fix the broken housing market, expressing frustration that it is blunting their extraordinary efforts to boost the economy.
The three speeches Friday marked the latest moves in an increasingly aggressive campaign by Chairman Ben Bernanke and other Fed officials to push the White House, Congress and regulators to address the problems of the housing market.
"The ongoing weakness in housing has made it more difficult to achieve a vigorous economic recovery," William Dudley, president of the New York Fed, told a bankers' group in Iselin, N.J. "With additional housing policy interventions, we could achieve a better set of economic outcomes."
The remarks come amid debate within the Fed over whether to add to its own efforts by purchasing more mortgage-backed securities in hopes of lowering long-term interest rates, which could spur more spending and investment.
Some Fed policy makers want to move, but worry another round of bond-buying may not be effective because of the factors preventing many homeowners from refinancing their mortgages and getting new loans. The obstacles include tight lending standards, tough property appraisals and new fees.
Addressing such housing problems could compliment more Fed bond buying if officials deem it necessary.
Eric Rosengren, the president of the Boston Fed, renewed his call for additional bond buying during a speech Friday in Hartford, Conn. But he said those actions "would be even more effective if accompanied" by other steps "designed to speed the recovery in housing."
Moving so aggressively into housing policy risks opening the Fed to criticism that it is exceeding its traditional mandate of keeping unemployment and inflation low.
But top Fed officials argued that housing woes are undermining the effects of their policies, such as holding short-term interest rates near zero and using securities purchases to push down long-term rates.
The housing market's problems have "made monetary policy less effective than it could be," Mr. Dudley said in an interview.
Fed officials underscored their policy disagreements with the Federal Housing Finance Agency, the independent regulator charged with overseeing Fannie Mae and Freddie Mac. The government took over the mortgage companies three years ago and the rescue has cost $151 billion and counting.
Fed governor Betsy Duke, speaking in Richmond, Va., said policymakers should consider policies that use Fannie and Freddie more aggressively to spur a housing recovery "rather than focusing entirely on minimizing losses" to the firms.
Mr. Dudley called on Fannie and Freddie to reduce loan balances for homeowners with so-called underwater mortgages, in which they owe more than their properties are worth. Such principal write-downs remain a hot-button political issue. Democrats and some economists say banks and the mortgage giants must begin to cut loan balances, while many Republicans say that would unfairly reward overextended borrowers.
Edward DeMarco, the acting director of the FHFA, told a congressional panel in November that forgiving debt isn't in the best interest of the firms. "I do not believe I've been authorized to use taxpayer money for a general program of principal forgiveness," he said. A FHFA spokeswoman declined to comment Friday on the Fed officials' remarks.
Separately, Fannie and Freddie said Friday they would allow some unemployed homeowners to receive reduced or suspended loan payments for up to one year, up from the current limit of four months. The extended forbearance policy came at the direction of the FHFA and will take effect as soon as next month. The firms did not say how many borrowers would be affected by the action. Around 12,000 borrowers had active short-term forbearance agreements with the two firms as of Sept. 30, 2010.
Mr. Dudley said that his staff's analysis "suggests that without a significant turnaround in employment, a substantial portion of those loans that are deeply underwater will ultimately default." Such defaults could "significantly swell the flow of homes into the foreclosure pipeline."
Concerns about introducing a "moral hazard" that encourages other borrowers to default to seek favorable treatment had been overstated, he said. "This isn't a moral hazard issue, this is just the bad luck associated with the timing of the purchase and an exceptionally weak jobs market. Punishing such misfortune accomplishes little."
Mr. Dudley warned of mortgage lending standards that are too tight, though he said he wasn't suggesting a return to the lax lending policies of the housing boom. He faulted conservative appraisal policies and "excessively stringent" efforts by Fannie and Freddie to force banks to buy back defaulted loans that run afoul of underwriting guidelines. Those demands have led lenders to tighten their own lending standards far beyond what the firms require.
While the White House and the FHFA last fall revamped a program that allows underwater homeowners with loans backed by Fannie and Freddie to refinance, he also said that more could be done to boost such refinancing.
The New York Fed estimates that the number of properties taken back by banks could rise to 1.8 million in each of 2012 and 2013, up from 1.1 million in 2011 and 600,000 in 2010.
The speeches followed the release on Wednesday of a 26-page Fed staff paper advocating more aggressive housing help.
"The Fed is trying to communicate that, 'we've done an awful lot, we're not happy with the results of our efforts and it's time to kick it up a notch because only extraordinary programs are going to bring about a faster result'," said Jim Vogel, an analyst at FTN Financial.
Posts
No comments:
Post a Comment