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Politicians Overlook Role of Housing in Economic Recovery

by devteam July 14th, 2011 | Share

The Chairman of the Federal Reserve today told Congress in his Semiannual Monetary Policy Review</a that "Households reportrnthat they have little confidence in the durability of the recovery and aboutrntheir own income prospects. Moreover, the ongoing weakness in home values isrnholding down household wealth and weighing on consumer sentiment.”</p

This is not encouraging news for a rapid recovery in America.</p

Ben Bernanke went on to share what the Fed views as looming threats toward positive progress in the broader economic recovery: “Among the headwinds facing the economy are the slow growth in consumer spending, even after accounting for the effects of higher food and energy prices; the continuing depressed condition of the housing sector; still-limited access to credit for some households and small businesses; and fiscal tightening at all levels of government.”</p

The Chairman then elaborated on housing specifically, saying “The demand for homes has been depressed by many of the same factors that have held down consumer spending more generally, including the slowness of the recovery in jobs and income as well as poor consumer sentiment. Mortgage interest rates are near recordrn lows, but access to mortgage credit continues to be constrained. Also, many potential homebuyers remain concerned about buying into a falling market, as weak demand for homes, the substantial backlog of vacant properties for sale, and the high proportion of distressed sales are keeping downward pressure on house prices.”</p

This sort of commentary isn’t surprising to housing finance professionals. The mortgage industry has been forced to endure all sortsrn of  “Cart Before the Horse” type regulatory reforms over the past two years which have ledrn to conflicting interpretations of regulatory policies and an over-tightening of loan underwriting guidelines. These measures have put banks on the defensive and all but cut off funding lines to “less than perfect” borrowers, deepening the hole that has become the housing market and further reducing private investor confidence.</p

What is surprising though is the ongoing lack of serious attention given to housing finance reform, especially after the Fed’s repeated warnings that housing is a major headwind in the macroeconomic recovery outlook.  </p

Not too many folks disagree with calls for much needed GSE Reform, but there is a major disparity among the urgency of these outcries.  Some say a piecemeal reform approach is the right move to protect the long-run solvency ofrn the banking system and mortgage finance. Others say we’re grossly overlooking the core issue facing U.S. growth prospects, a housing market on the verge of being totally sucked into a negative feedback loop. </p

Are politicians grossly overlooking the housing crisis as a major source of economic stagnation?</p

I think so. And I’m sure most industry professionals would agree with me…</p

———————-</p

U.S. bill to reform Fannie, Freddie unlikely soon </p

By Margaret Chadbourn</p

WASHINGTON, July 12 (Reuters) – The U.S.rnhousing finance system badly needs an overhaul, but chances for winding down ailingrnmortgage giants Fannie Mae and Freddie Mac in the near term arernremote, the top Republican on the U.S. House of Representatives FinancialrnServices Committee said on Tuesday.</p

“We would like a comprehensive bill.rnNow, can we get a comprehensive bill? I don’t know. I don’t think so,”rnsaid Representative Spencer Bachus, an Alabama Republican who chairs the HousernFinancial Services Committee.</p

Bachus said at a capital marketsrnsubcommittee markup of seven small bills relating to Fannie Mae and Freddie Macrnthat he is waiting on the Obama administration to introduce a formal outline ofrnhow to deal with the two mortgage giants before moving forward in the Housernwith broader legislation.</p

He was sharply criticized byrnRepresentative Barney Frank, the leading Democrat on the committee, forrnstalling on congressional action to reform Fannie and Freddie.</p

“I have been hoping that we arerngoing to get legislation to replace Fannie Mae and Freddie Mac. Now I am toldrnby the chairman that we can’t do that — that he isn’t able to get a billrnpassed,” said Frank, a Massachusetts Democrat.</p

FRANK: GOP LACKS REFORM VOTES</p

The Republicans, Frank said, do not havernthe necessary votes to enact wider reform of Fannie and Freddie. He questioned thernGOP tactic of introducing a flurry of smaller bills over the past couple ofrnmonths to incrementally reduce the government’s role in the mortgage market.</p

Bachus said he met with TreasuryrnSecretary Timothy Geithner and Housing Secretary Shaun Donovan in April, alongrnwith other members of his party, to discuss various proposals on housingrnfinance reform.</p

He blamed the Obama administration forrnfailing to take the lead on writing a formal reform plan for Fannie andrnFreddie, and said that has kept Republicans from voting on a comprehensivernbill.</p

The Obama administration outlined ideasrnfor restructuring the housing finance system in February, but did not call forrnspecific legislation.</p

The Treasury Department unveiled threernoptions in February for overhauling the U.S. housing finance system, andrnrecommended selling off the loans Fannie and Freddie hold over time.</p

“I’m being criticized here forrnwaiting on the administration. If they want to bring forth a comprehensivernproposal, they have two or three weeks to do it,” Bachus said.</p

Fannie Mae and Freddie Mac are companiesrnchartered by Congress to make financing available to support housing markets.rnThe government took over the companies, which are known as government-sponsoredrnenterprises, in September 2008 at the height of the financial crisis when theyrnwere hit hard by soured home loans.</p

More than 85 percent of new loans arernbacked by the government in some way, including Fannie, Freddie and the FederalrnHousing Administration, which does not make loans directly but insures thosernthat meet certain standards. </p

The House capital markets andrngovernment-sponsored enterprise subcommittee is considering seven small billsrnfrom Republicans. The bills mainly address capping the total dollar amount ofrnfederal bailouts for Fannie and Freddie, which have cost taxpayers more thanrn$135 billion so far this year. Any measure approved in the Housernsubcommittee would have to be approved by the full committee, then the fullrnHouse and the Senate before it could be sent to President Barack Obama to bernsigned into law. </p

Debate over the fate of the mortgagernfinance enterprises, which are central to the secondary housing market, isrnexpected to spill into 2013. </p

——-</p

BOTTOM LINE: The housing market is swimming in a sea of uncertainty and won’t be on its way to recovery until some sort of concrete forward looking directional guidance is offered by an official source, good or bad! We don’t expect this mess to be cleaned up overnight, nor do we think it’s fair to expect a broad-based reform package to be implemented with one swipe of President Obama’s pen.  Whatrn we do expect is better management of expectations and a clear voice of leadership. And if the regulators are really having this much difficultyrn making a decision on the next move…then maybe they shouldn’t be implementing onesy-twosy patchwork regulations just to appease outcries for reform. All that does is create more confusion …which only breeds more uncertainties and adds further barriers to the home loan qualification process. </p

The Reds say they’ve tried to get the ball rolling and the Blues say they’re ready to act but the Reds won’t compromise.rn And because Republicans have a majority in the House, they don’t need to compromise. Sounds like a stalemate (Dems have control of Senate so arn House bill would get shot down there). Isn’t this the samern exact spot we were in last year? Yes it is. The issue has been debated and discussed over and over again, yet no SERIOUS positive progress has been made….just more political pandering and poo slinging in preparation for the 2012 elections. </p

WHAT A JOKE </p

If no serious attention is given to housing finance reform until after the 2012 elections, what are the implications on the broader economy? Isrn America doomed to undergo a long, slow, uneven recovery? It certainly seems that way right now.

All Content Copyright © 2003 – 2009 Brown House Media, Inc. All Rights Reserved.nReproduction in any form without permission of MortgageNewsDaily.com is prohibited.

About the Author

devteam

Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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