ORLANDO, FL—Fed chairman Ben Bernanke called on regulators to “look carefully” at rules that diminish the origination of prudently underwritten mortgages, telling a gathering of homebuilders that the health of the housing market is central to the vitality of the economy as a whole.
Addressing an audience of more than 2,500 builders and allied professionals attending the National Association of Home Builders' annual convention here, Bernanke said the fact that many creditworthy borrowers have found it difficult to obtain financing has limited the impact of the steps the central bank has taken to put downward pressure on long-term interest rates.
Tighter lending standards were to be expected, the Fed chairman said. But the “pendulum has probably swung too far the other way,” he added. Now, lending rules are “too tight for the health of the economy.
“We want banks to take a balanced approach, and that includes builders,” he said to a round of applause.
“We trained our examiners to use these approaches, and we've seen some improvement, some easing recently. But it's a Catch-22.”
Bernanke said that his message to regulators is for them to take a balanced approach and to approve loans for those who meet sound underwriting standards.
“Do not turn away creditworthy borrowers,” he said.
Barry Rutenberg, the newly elected chairman of the 144,000-member National Association of Home Builders, praised the Fed chairman for his grasp of the situation facing not just his members' buyers, but the members themselves.
“Chairman Bernanke understands that today's tight credit conditions are preventing qualified buyers from obtaining home loans and builders from getting financing for the construction of viable new home building projects, and that this is harming the housing market as well as the overall economy,” said Rutenberg, a builder from Gainesville, Fla.
Bernanke said the Federal Reserve is “extremely interested in housing” and is trying “to make people aware how central it is to the economy.”
Noting that homeowners tend to spend between $3 and $5 a year less for every $100 of housing value lost, he said consumer spending has been reduced by $200 billion to $375 billion annually because of the $7 trillion drop in household wealth fostered by the housing downturn.
Bernanke also spoke about the possibility of turning REO properties into rentals.
While REO-to-rental programs “are not a silver bullet,” he said, they could take the pressure of regular sellers, including builders, as well as neighborhoods and communities trying to deal with foreclosed, boarded-up houses.
Such plans “have some potential for success,” he said, noting that the number of properties suitable for rental “is bound to increase.”
Answering a question from a New York investor who was unable to refinance his properties because he has more than four loans, the Federal Reserve chairman said such limits are “counterproductive” and that policy should encourage more loans to investors to help ease the inventory of distressed properties.
In that investors fix up often run-down properties and put them back on the market, the economist said, “What's wrong with that?”
Bernanke's speech to the National Association of Home Builders, the first by a Fed chair in recent memory, comes on the heels of an early January Federal Reserve white paper to Congress, which outlined several possible actions lawmakers could take to promote a housing recovery.
