What We're Reading: January 17

Throughout the week, the BPC Housing Commission will highlight news articles that address critical developments in housing policy. Any views expressed in the content posted on this forum do not necessarily represent the views of the Commission, its co-chairs or the Bipartisan Policy Center.

Senate Republicans Criticize Fed on Housing Advocacy

By Alan Zibel

The Wall Street Journal

“Top Federal Reserve officials came under fire on Capitol Hill on Tuesday as Republicans criticized the central bank for advocating more steps to aid the battered U.S. housing market. In a letter sent to Fed Chairman Ben Bernanke, Sen. Orrin Hatch (R., Utah) criticized a paper published by the Fed last week that called for more action to stabilize the troubled sector of the economy. The paper, an unusual step for the Fed, came as officials at the central bank have worried that millions of Americans can’t refinance their home loans and take advantage of low interest rates engineered by the central bank. However, Hatch argued that the Fed shouldn’t move so aggressively into housing policy. Publishing a paper and advocating policy positions on housing oversteps the central bank’s mandates of keeping unemployment and inflation low, wrote Hatch, the top Republican on the Senate Finance Committee.” Read more here.

DOJ: Feds must take active role in foreclosure mediation

By Jon Prior

HousingWire

“A panel of foreclosure mediation experts organized by the Department of Justice concluded the federal government is needed to better fund and standardize promising initiatives across the country. Since 2007, more than 8.9 million homes have been lost to foreclosure, according to RealtyTrac data. More than 30 foreclosure mediation programs have been created in at least 25 states to put borrowers in touch with servicers for a better shot at a modification or some other alternative to foreclosure. Several programs continue after a few years. But research on whether these mediation programs actually work is scarce.” Read more here.

Fed Turns Over $77 Billion in Profits to the Treasury

By Binyamin Appelbaum

The New York Times

“The Federal Reserve said on Tuesday that it contributed $76.9 billion in profits to the Treasury Department last year, slightly less than its record 2010 transfer but much more than in any other previous year. The Fed is required by law to turn over its profits to the Treasury each year, a highly lucrative byproduct of the central bank’s continuing campaign to stimulate economic growth. Almost 97 percent of the Fed’s income was generated by interest payments on its investment portfolio, including $2.5 trillion in Treasury securities and mortgage-backed securities, which it has amassed in an effort to decrease borrowing costs for businesses and consumers by reducing long-term interest rates.” Read more here.

Bernanke Doubles Down on Fed Bet Defied by Recession

By Jody Shenn

Bloomberg

“Ben S. Bernanke is signaling his willingness to double down on a three-year bet that’s failed to revive housing, showing the extent of the Federal Reserve chairman’s effort to wrest a recovery from the deepest recession. Since the Fed started buying $1.25 trillion of mortgage bonds in January 2009, the value of U.S. housing has fallen 4.1 percent, and is down 32 percent from its 2006 peak, according to an S&P/Case-Shiller index. The central bank is poised to buy about $200 billion this year, or more than 20 percent of new loans, as it reinvests debt that’s being paid off. Some Fed officials have said they may support additional purchases that Barclays Capital estimates could total as much as $750 billion. Even as Bernanke and fellow U.S. central bankers consider expanding their efforts, they are acknowledging their inability to turn around the housing market without help from the rest of the government. Bernanke underscored the importance of residential real estate, which represents 15 percent of the economy, in a study he sent to Congress last week that said ending the slump is necessary for a broader recovery.” Read more here.

Where Does Crime Go After Public Housing Projects Are Demolished?

By Emily Badger

The Atlantic

“Eventually, cities started razing a lot of the worst projects, many under the Hope VI federal grant program that offered financing for a new generation of public housing that wasn’t supposed to look like public housing at all. Hope VI called for rebuilding mixed-income communities on shorter blocks with less institutional town homes and designing streets, lawns, and porches that people would want to cherish and protect. It wasn’t clear though what would happen to all that crime when old public-housing fortresses were demolished. Would it move with the residents when they were dispersed? Would it just cross the street? And would any improvements really last over time?” Read more here.

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“One fundamental reason for this blindness was that Fed officials did not understand how deeply intertwined the housing sector and financial markets had become.”

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The Need for Speed

By Jerry Ascierto

Affordable Housing Finance

“The Federal Housing Administration (FHA) will start a new pilot program in the spring charged with getting affordable housing deals done much more quickly. The Tax Credit Pilot Program was originally mandated more than three years ago by the Housing and Economic Recovery Act of 2008. But a change in administrations and several bureaucratic holdups have delayed its implementation. The program, modeled on the LEAN program for health care loans, will expedite the processing of deals using low-income housing tax credits (LIHTCs).” Read more here.

Underwater Homeowners May Swim Freely

By Lena Groeger

ProPublica

“Prevailing wisdom has it that homeowners who owe more on their mortgages than their houses are worth — known as being “underwater” — are forced to stay put because the property is too difficult to sell. So people who would otherwise relocate — say, to find a job — are “tethered to their homes.” It’s a theory touted by prominent New York Times columnist Thomas Friedman, Harvard economist Lawrence Katz, and regularly makes appearances in the media. But according to economist Sam Schulhofer-Wohl at the Federal Reserve Bank of Minneapolis, they’ve all got it backwards: underwater homeowners are actually more likely to move. In a forthcoming paper, he argues that the main source of empirical evidence for the established view is flawed, because it ignores a substantial number of movers.” Read more here.

Why 2012 Isn’t Looking So Good for Renters

By Nicole Pasulka

Mother Jones

“More Americans are renting homes while the number of homeowners is on the decline, according to a recent Morgan Stanley report. The report, published last July but recently making its way through the media, finds that in 2011 the number of owner-occupied homes in the US declined by 644,000 from 2010. The number of vacant rental properties, meanwhile, decreased by 132,000 from 2010. Taken together, the numbers suggest a growing trend of American renters, so much so that Reuters predicts 2012 will be the ‘year of the landlord.’” Read more here.

Housing outlook is more upbeat

By Julie Schmit USA

Today

“Home sales and home building are forecast to rise this year after sliding steeply the past five years in housing’s worst downturn since the Great Depression. Recovery is expected to be slow, and home prices are widely expected to fall this year. But investors are betting on the start of an upturn, bidding up home builder stocks and causing them to outperform the broader stock market.” Read more here.

“Inside the Fed in 2006: A Coming Crisis, and Banter

By Binyamin Appelbaum

The New York Times

“One fundamental reason for this blindness was that Fed officials did not understand how deeply intertwined the housing sector and financial markets had become. They also were convinced that financial innovations, by distributing the risk of losses more broadly, had increased the strength and resilience of the system as a whole.” Read more here.

Foreclosure reviews to take longer than expected

By Julie Schmit

USA Today

“Reviews of hundreds of thousands of foreclosure cases ordered by regulators last year will take months longer to complete than first expected, according to documents filed with federal banking regulators. The delays could postpone compensation for some homeowners harmed by improper foreclosure actions. The reviews cover foreclosure actions in 2009 and 2010 by the nation’s 14 largest mortgage servicers, which handle payments for about 65% of U.S. mortgages. They are required by enforcement orders announced by federal regulators last April.” Read more here.

Private Equity Readying a Run on Foreclosures

By Diana Olick

CNBC

“As the Obama administration and federal regulators work on a program to sell government-owned foreclosures in bulk to investors, those investors aren’t wasting any time stockpiling cash and buying foreclosed properties at auction and from the major banks. Oakland, California-based Waypoint Real Estate Group, a major acquirer of so-called ‘REO to Rental’ (Real Estate Owned) just announced a partnership with a private equity firm, Menlo Park, California-based GI Partners, to buy foreclosed properties.” Read more here.