WASHINGTON — Two Senate Republicans on Tuesday fired warning shots at the Federal Reserve Board over recent central bank suggestions that more should be done to heal the U.S. housing market.
Sen. Orrin Hatch, the top Republican on the Senate Finance Committee, blasted the Fed for straying too far into fiscal policy in a housing white paper that it sent to Congress last week.
The Fed white paper discusses the possibility of establishing a program in which foreclosed properties owned by the federal government are converted into rental properties. It also discusses potential ways to expand the Obama administration's refinancing program, and it calls for consideration of principal reductions.
In a letter to Fed Chairman Ben Bernanke, Hatch wrote, "Your staff's white paper contains a number of conjectures and proposes consideration of a number of policies that are clearly in the province of fiscal policy, including policies that would directly allocate losses to innocent taxpayers, even though those taxpayers did not undertake the risks that led to the losses."
"I am sure that the Fed would not appreciate a white paper from Congress outlining how to think about and execute monetary policy," the letter continued.
Republican Sen. Bob Corker, meanwhile, attacked New York Fed President William Dudley, who called on the federal government to try new housing programs in a speech last week.
In particular, the Tennessee Republican took exception to Dudley's call for earned principal reduction for borrowers who owe more than their homes are worth and are current on their mortgage payments.
"Reducing the principal on home loans for borrowers who put no money down amounts to a massive wealth transfer from places like Tennessee, where most homeowners have borrowed responsibly, to places like California and New York, where exotic mortgages were widely used to finance a speculative housing boom," Corker said in remarks to the Greater Nashville Association of Realtors.
"It is absolutely egregious that the Federal Reserve would insert itself in this manner and ask people in Tennessee who played by the rules to bail out reckless borrowers in other parts of the country."