By Gretchen Wegrich
Federal Reserve Chairman Ben Bernanke spoke about housing issues to the House Committee on Financial Services, noting that Qualified Residential Mortgage standards were needed.
A member of the committee, R-Calif. Gary Miller, questioned Bernanke about his views on finalizing Qualified Residential Mortgage (QRM) standards.
Bernanke responded that the QRM standards should be no broader than the existing qualified mortgage rule. He added that the QRM criteria “should not be so constraining.”
Congresswoman Carolyn Maloney, D-NY, spoke out about the Fed’s ineffectiveness during the independent foreclosure review process. The review was eventually canceled and an $8.5 billion settlement with servicers was substituted.
“We can put a person on the moon, but we can’t solve the foreclosure process,” Maloney said, noting that more than $1.5 billion has been paid to consultants, but not homeowners.
Bernanke acknowledged the Fed’s responsibility for the slow review process, but stated that the process is now streamlined to bypass consultants and deal directly with borrowers. In the coming weeks, Bernanke said, approximately $9 billion in mortgage relief will be paid to borrowers.
Although Bernanke believes “an acceptable set of institutions” will need to replace Fannie Mae, Freddie Mac and the Housing Administration’s dominance of the mortgage market at some future date, “shutting them down would restrict credit quite considerably,” he said.
As an indicator of positive change, Bernanke highlighted the housing market. Although the market fell 30% during the financial crisis, housing is now recovering from its bottom line, Bernanke said.
Although Bernanke acknowledged the difficulty in making predictions, he noted that the housing market continues to improve with record low mortgage rates and increasing home prices. In addition, he observed that although foreclosures remain high, the number of underwater borrowers continued to drop.
Home prices increased by 5.5% during 2012, as measured by S&P’s Case-Shiller home price index. Home sales in 2012 soared to their highest level in five years. A memo released by members of the Committee on Financial Services also noted that investment grew by above 10 percent in four of the last five quarters.
The economy continues to improve as a result of improvements in the housing market, sending people back to work in multiple industries, including construction.
Therefore, if unemployment continues to decline and inflation continues to increase, the monetary policy and quantitative easing program will remain untouched, Bernanke said.
Bernanke also acknowledged the strategy behind the Federal Open Market Committee’s attempt to use interest rates to fuel certain asset purchases, including home prices.
“By raising employment and household wealth –for example, through higher home prices –these developments have in turn supported consumer sentiment and spending,” Bernanke said.
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