US Federal Reserve Chairman Ben Bernanke on Friday issued a call to action to restore US housing markets, saying depressed house prices and sales are a serious drag on the economic recovery.
“The state of housing has been an impediment to a faster recovery,” he told a home builders’ conference. “We need to continue to develop and implement policies that will help the housing sector get back on its feet.”
Bernanke laid out a few ideas from a recent Fed white paper on housing, but steered clear of the more controversial options, such as expanding the reach of government-controlled mortgage firms Fannie Mae and Freddie Mac to spur more refinancing.
The Fed chief’s recommendations, however cautious, fly in the face of complaints from some Republican lawmakers that the central bank was intruding on the turf of Congress and other regulators.
The white paper, issued last month, was the result of several months of study by Fed staff of a problem officials at the central bank have concluded is a key missing ingredient to a healthier economic recovery.
More than two-and-a-half years after the end of a deep recession, housing markets remain in the doldrums.
Home values are down 33 percent from their 2006 peak and almost 11 million people in the US — about one in four with mortgages — now owe more than their homes are worth. In some hard-hit states, such as Nevada and Florida, about half of all mortgage borrowers are underwater on their loans.
In his speech, Bernanke called on lenders and regulators to look at rules and practices that may hold back the origination of sound mortgages, pointing at overly tight credit as one reason the housing recovery has been slow.
He added that an overhang of vacant homes and a glut of foreclosures was also weighing on activity and said it could make sense to turn some foreclosed homes into rental properties — a policy the administration of US President Barack Obama is already pursuing.
The administration has taken a number of steps to help distressed homeowners win new mortgage terms or refinance, but those efforts have fallen short of meeting their goals.
It is currently pushing the regulator of Fannie Mae and Freddie Mac to allow those firms to write down mortgage principal, an idea that is anathema to many conservatives.
On Thursday, five big US banks accused of abusive mortgage practices agreed to a US$25 billion government settlement aimed at delivering some relief to struggling borrowers, partly through a program of debt forgiveness.
None of these efforts are expected to prove a silver bullet and Bernanke warned that no single solution would be sufficient.
Another top Fed official — Cleveland Federal Reserve Bank president Sandra Pianalto — also pointed at housing on Friday as a key impediment to a stronger recovery, calling it “a significant headwind.”
Pianalto, who is a voter this year on the Fed’s policy-setting panel, said declines in housing wealth were keeping consumers away from stores and making it harder for businesses to borrow. Bernanke said the loss of housing wealth may be chopping US$200 billion to US$375 billion off consumer spending a year.