In Case You Missed It: Housing Crisis Won’t Fix Itself, Requires Federal Action

In case you missed it…

Yesterday, Federal Reserve Chairman Ben Bernanke released a report reiterating Congressman Dennis Cardoza’s (D-CA) longstanding argument that bold, far-reaching action is needed to stem the housing crisis and spur economic recovery.   According to Bloomberg News, the Fed’s report concluded, “A policy of no action will lengthen the housing slump, generate higher costs to the economy, push home prices lower and prolong ‘downward pressure on the wealth of current homeowners and the resultant drag on the economy at large.’”

“At last, someone in this Administration seems to get that the housing crisis won’t ‘fix itself,’” said Congressman Cardoza.  “We cannot afford to ‘let the market work it out,’ as several Republican presidential candidates have advocated.  Bold, immediate action is critical, action like my HOME Act, which would allow up to 30 million struggling homeowners re-finance their mortgages at current low interest rates, helping them keep their homes out of foreclosure. 

“I hope the President will take his own advice and realize ‘we can’t wait’ any longer to fix the housing crisis.”

Congressman Cardoza represents California’s Central Valley, which has been ground zero for the housing crisis.  In some communities, over 53 percent of mortgages are underwater. 70,000 people have lost their homes to foreclosure since the crisis began in 2007.

In 2009, Congressman Cardoza first introduced the Housing Opportunity and Mortgage Equity (HOME) Act, which would help up to 30 million struggling homeowners with mortgages backed by Fannie Mae or Freddie Mac to benefit from current historically low market interest rates and refinance for up to 40 years at a fixed single-digit rate. This would significantly lower the homeowner’s monthly mortgage payments, resulting in fewer foreclosures, while stabilizing the housing market and the national economy.

Lorraine Woellert of Bloomberg News reported yesterday that Chairman Bernanke’s analysis included many of the same conclusions Congressman Cardoza has put forward regarding the central role that the distressed housing market plays in the current economic downturn.

Bloomberg reported:

A report from Federal Reserve Chairman Ben S. Bernanke called the weakness in the housing market a “significant barrier” to U.S. economic health and said Fannie Mae and Freddie Mac might have to bear greater losses to stoke a broader recovery.

The article said the Bernanke report concluded:

“Some actions that cause greater losses to be sustained by the GSEs in the near term might be in the interest of taxpayers to pursue if those actions result in a quicker and more vigorous economic recovery,” according to the study.

That tension was a theme throughout the 26-page report, which examined ways to clear the glut of foreclosed properties, protect homeowners from default, and help more borrowers take advantage of record-low mortgage rates. Doing nothing would chill an already-tepid expansion, according to the report.

A policy of no action will lengthen the housing slump, generate higher costs to the economy, push home prices lower and prolong “downward pressure on the wealth of current homeowners and the resultant drag on the economy at large,” the paper found.

The Bloomberg article also commented on the Administration’s resistance to a widespread re-financing program, like Congressman Cardoza’s HOME Act:

Some economists have called for a federal refinancing program that would allow borrowers to quickly and easily lower the interest rate on their mortgages regardless of how much their home values have dropped or how much debt they carry.

The Federal Housing Finance Agency, which is charged with conserving Fannie Mae and Freddie Mac assets, has resisted such a move.

…..

Most of the issues raised by the Fed paper can be addressed without legislation, said Sean Oblack, a spokesman for Senate Banking Chairman Tim Johnson, a South Dakota Democrat. Oblack criticized the FHFA for focusing too much on the GSEs’ bottom lines.

“It is particularly telling that the white paper calls for regulators to evaluate their options on a more macro level rather than simply base evaluations on short-term gains or losses,” Oblack said.

The text of the Bloomberg article is below. To view it in its entirety, click here.

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