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...


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.


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.


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.


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.