Ben Bernanke, chairman of the Federal Reserve, sent an open letter and report to the chairs of the House and Senate Banking, Housing and Urban Affairs Committees urging them to consider additional steps to support housing. The report argues that housing in the US continues to suffer from excess supply, high rates of foreclosure, limited access to mortgages and weak prices and that these conditions retard economic growth. Three general policy areas are focused on: limiting increases in new supplies of unsold homes, removing obstacles that prevent credit-worthy borrowers from getting mortgages and reducing the number of homeowners pushed into foreclosure. One major focus is the large number of REO houses — real estate owned by banks, other lenders, mortgage servicers or Fannie Mae and Freddie Mac. The Fed argues that the demand for rental housing is rising in many cities while the supply of rental homes is not increasing fast enough so rents are being pushed higher. The report proposes policies to move REO homes into the rental market — the policies vary depending on whether the houses are owned by banks, other lenders, Fannie Mae or Freddie Mac so the issues aren’t simple or direct.
The report also highlights the tightening of mortgage lending standards during 2007-2009, after the damage from overly lax lending became all too clear, and points out that the Fed’s own surveys of bank lending terms reveals little or no relaxation of tighter standards since 2009. One segment of the market that is particularly hard hit by tight lending standards is first time home buyers who tend to be younger and have fewer financial resources than other home buyers. The problem for the housing market is that first time home buyers are normally an important source of demand for housing. Finally, the report recognizes that programs to assist home owners at risk of default and foreclosure — HARP and HAMP — have been less successful than hoped. Yet finding ways to help this group of home owners is essential to helping housing.
The two key aspects of the report are the Fed’s push coming from the top and the focus on moving houses into the rental market. What happens next is probably a question for politics, not economics or housing.