Fed suggests bigger taxpayer presence in housing

Though the federal government has repeatedly attempted to work its way out of the housing market, Federal Reserve Chairman Ben Bernanke yesterday called for more public support for the market, which he said was a critical component of a broader sustained economic recovery. Outlined in a 26-page paper the Fed sent to Congress, Bloomberg News reported that support could include cutting mortgage obligations for U.S. homeowners, making taxpayer-supported Freddie Mac and Fannie Mae more susceptible to losses.

“Some actions that cause greater losses to be sustained by the [government-sponsored enterprises] in the near term might be in the interest of taxpayers to pursue if those actions result in a quicker and more vigorous economic recovery,” according to the study.

The Wall Street Journal reported that much of the letter’s remaining recommendations are already under consideration by policymakers, including repositioning foreclosed homes as rentals and taking steps to encourage lenders to loosen mortgage underwriting standards. If the current tight lending standards, high inventory and falling prices persist, the Fed might purchase more mortgage-backed securities to lift the economy – even though it increases public exposure to the housing market.

While more federal involvement in the market puts off many policymakers, some, including Senate Banking Chairman Tim Johnson, a South Dakota Democrat, praised the study’s long-term approach to correcting the market. The Federal Housing Finance Agency, his spokesperson said, has been too concerned with Freddie and Fannie’s bottom lines. [Bloomberg] and [WSJ]