The Federal Reserve voice alarm over the battered home market
and called for more aggressive action from Congress and other
policy makers.
Housing policy is outside of the traditional purview of teh
central bank, but Fed Chairman Ben Bernanke and others are
clearly worried that housing has stymied the effect of the
bank's low-interest-rate policies.
In a 26-page white paper sent to top lawmakers on congressional
banking committees, the Fed warned that tight mortgage
lending standards threaten to hold back the economy.
The Fed also signaled support for more aggressive use of
Fannie Mae and Freddie Mac to support a housing recovery.
The firms, which don't make loans but purchase them from
lenders, were taken over by the government three years ago
and are overseen by a separate regulator, the Federal Housing
Financa Agency which has strictly interpreted its charge
to limit the firms losses.
The central bank has lowered short-term interest rates
close to zero and said it is likely to keep them at ultra
low levels through at least the middle of next year. That
has helped reduce mortgage rates to their lowest recorded
levels, but many borrowers haven't been able to benefit
because they don't have enough equity in their homes or
because they have blemishes on their credit or uneven
incomes.
Without action the adjustment to a normal economy will
take longer and incur more deadweight losses, pushing
housing prices lower and thereby prolonging the downward
pressure on the wealth of current homeowners and the
resultant drag on the economy at large.
Sheila McKinney
