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A plan by the Obama administration to help millions of middle class families refinance their homes would cost large banks between $5 billion to $10 billion, the White House said Wednesday.
February 1 -
A recent paper released by Fed economists has sparked a firestorm of criticism, but it could be just what policymakers need to jumpstart a much ailing housing market.
January 20
WASHINGTON — A top House Republican lambasted Federal Reserve Board Chairman Ben Bernanke on Thursday, arguing the central bank had no business issuing a white paper examining potential fixes to the housing market.
"I was truly taken aback when just recently, as you know, the Fed issued an unsolicited white paper on housing policy," Rep. Scott Garrett, R-N.J., said at a House Budget Committee hearing. "On the one hand, you say you don't get involved in these [fiscal policy] areas, but here you had a white paper that was not solicited from us."
Bernanke defended the Fed's decision to release the paper by staff economists, contending that the central bank had a stake in the housing market given its importance to the economy.
"The Fed has a lot of interest in housing. It's important for the economy. It's important for monetary policy," said Bernanke.
But Garrett, who chairs the House subcommittee with oversight of the government-sponsored enterprises, noted that Congress has significant interest on monetary policy, but traditionally leaves the issue entirely to the Fed.
"Is this an invitation now to Congress that we should be issuing resolutions to what the monetary policy that the Fed should be doing?" Garrett said. "If so, I'm sure there are a lot of members who would like to engage in it."
Bernanke responded that he receives plenty of advice from Congress already — a comment that spurred laughter in the hearing room.
"We have done a lot of work on this," said Bernanke. "We've gotten a lot of requests from individual congressmen for our views and for our analysis. It was not the intent of that white paper to provide a set of recommendations. We were trying to provide pros and cons, analysis, background."
Garrett hasn't been alone in taking umbrage to the paper. Senate Republicans have also criticized the Fed, arguing the central bank went beyond its dual mandate of price stability and maximum employment.
Bernanke stressed it was not the intent of the Fed to tell Congress what to do.
"I know you're skeptical, but we are trying very hard to avoid encroaching on Congress' fiscal responsibilities," said Bernanke. "I apologize if it was misinterpreted. Again, our goal was just to be helpful."
In the paper, the central bank did not pick sides in the ideological divide between the political parties on the issue, though Garrett questioned if that was really the case. Instead, the paper detailed the complex task policymakers will have to take on.
Among the areas the Fed's paper touched on included policies that would help moderate the inflow of properties into the larger inventory of unsold homes, improve creditworthy borrowers access to mortgage credit, and limit the number of homeowners who end up in foreclosure pipelines.
Many observers have viewed the decision by the Fed, who has been increasingly outspoken on the need to revive the housing market, as a sign of frustration over the lack of inaction by policy makers.
Unlike other economic periods, housing is unique in becoming a drag on economic growth. Combined with a poor labor market, issues such as an excess supply of vacant homes, less access to mortgage credit, and ongoing costs from an inefficient foreclosure process continue to hamper Fed efforts to promote a stable economy.
"One of the main reasons that the recovery has been as disappointing as it has been is that usually housing provides an important amount of the impetus to growth — not just construction, but all of the related industries that are tied to housing," Bernanke said, in response to a question by Rep. John Campbell, R-Calif. "In this case, housing has been very weak. In fact, we've seen a few small positive indicators, but generally it remains at a very low level. The recovery in housing would be a very important boost to the overall recovery."
When asked about President Obama's recently announced plan to spur mass refinancings, Bernanke declined "to endorse or not endorse" any program, but acknowledged that it would come with a cost — not just to the banks.
The White House has said the plan will cost anywhere between $5 billion to $10 billion and will be paid for through a fee to the largest U.S. banks.
But Bernanke said there would also be a cost to investors, including the Fed, which has purchased $1 trillion of mortgage-backed securities. The Fed hasn't done any calculations on what the potential loss could be to the central bank, according to the chairman.
Having said that, the number of families who have refinanced their homes has been lower than usual, which has offset any benefit of the Fed buying the securities at a premium.
"It should be acknowledged the rates of refinance have been extremely low — lower than expected over the last couple of years," said Bernanke. "In some sense that is reversing the gain we got, but you're right, there are costs to the program. There's cost potentially to investors and those costs to the government potentially."
