The Chairman of the Federal Reserve today told Congress in his Semiannual Monetary Policy Review
that "Households report
that they have little confidence in the durability of the recovery and about
their own income prospects. Moreover, the ongoing weakness in home values is
holding down household wealth and weighing on consumer sentiment."
This is not encouraging news for a rapid recovery in America.
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."
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 record
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."
This sort of commentary isn't surprising to housing finance
professionals. The mortgage industry has been forced to endure all sorts
of "Cart
Before the Horse" type regulatory reforms over the past two years which have
led
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.
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.
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 of
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.
Are politicians grossly overlooking
the housing crisis as a major source of economic stagnation?
I think so. And I'm sure most industry professionals would agree with me...
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U.S. bill to reform Fannie, Freddie unlikely soon
By Margaret Chadbourn
WASHINGTON, July 12 (Reuters) - The U.S.
housing finance system badly needs an overhaul, but chances for winding down ailing
mortgage giants Fannie Mae and Freddie Mac in the near term are
remote, the top Republican on the U.S. House of Representatives Financial
Services Committee said on Tuesday.
"We would like a comprehensive bill.
Now, can we get a comprehensive bill? I don't know. I don't think so,"
said Representative Spencer Bachus, an Alabama Republican who chairs the House
Financial Services Committee.
Bachus said at a capital markets
subcommittee markup of seven small bills relating to Fannie Mae and Freddie Mac
that he is waiting on the Obama administration to introduce a formal outline of
how to deal with the two mortgage giants before moving forward in the House
with broader legislation.
He was sharply criticized by
Representative Barney Frank, the leading Democrat on the committee, for
stalling on congressional action to reform Fannie and Freddie.
"I have been hoping that we are
going to get legislation to replace Fannie Mae and Freddie Mac. Now I am told
by the chairman that we can't do that -- that he isn't able to get a bill
passed," said Frank, a Massachusetts Democrat.
FRANK: GOP LACKS REFORM VOTES
The Republicans, Frank said, do not have
the necessary votes to enact wider reform of Fannie and Freddie. He questioned the
GOP tactic of introducing a flurry of smaller bills over the past couple of
months to incrementally reduce the government's role in the mortgage market.
Bachus said he met with Treasury
Secretary Timothy Geithner and Housing Secretary Shaun Donovan in April, along
with other members of his party, to discuss various proposals on housing
finance reform.
He blamed the Obama administration for
failing to take the lead on writing a formal reform plan for Fannie and
Freddie, and said that has kept Republicans from voting on a comprehensive
bill.
The Obama administration outlined ideas
for restructuring the housing finance system in February, but did not call for
specific legislation.
The Treasury Department unveiled three
options in February for overhauling the U.S. housing finance system, and
recommended selling off the loans Fannie and Freddie hold over time.
"I'm being criticized here for
waiting on the administration. If they want to bring forth a comprehensive
proposal, they have two or three weeks to do it," Bachus said.
Fannie Mae and Freddie Mac are companies
chartered by Congress to make financing available to support housing markets.
The government took over the companies, which are known as government-sponsored
enterprises, in September 2008 at the height of the financial crisis when they
were hit hard by soured home loans.
More than 85 percent of new loans are
backed by the government in some way, including Fannie, Freddie and the Federal
Housing Administration, which does not make loans directly but insures those
that meet certain standards.
The House capital markets and
government-sponsored enterprise subcommittee is considering seven small bills
from Republicans. The bills mainly address capping the total dollar amount of
federal bailouts for Fannie and Freddie, which have cost taxpayers more than
$135 billion so far this year. Any measure approved in the House
subcommittee would have to be approved by the full committee, then the full
House and the Senate before it could be sent to President Barack Obama to be
signed into law.
Debate over the fate of the mortgage
finance enterprises, which are central to the secondary housing market, is
expected to spill into 2013.
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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. What
we do expect is better management of expectations and a clear voice of
leadership. And if the regulators are really having this much difficulty
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.
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.
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 a
House bill would get shot down there). Isn't this the same
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.
WHAT A JOKE
If no serious attention is given to housing finance reform until after
the 2012 elections, what are the implications on the broader economy? Is
America doomed to undergo a long, slow, uneven recovery? It certainly
seems that way right now.