Federal Reserve Board Chairman Ben Bernanke called on regulators to “look carefully” at rules which diminish the origination of prudently underwritten mortgages, telling a gathering of home builders 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 in Orlando, Bernanke said the fact the 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.”
Answering a question from a New York investor who was unable to refinance his properties because he has more than four loans, Bernanke said such limits are “counterproductive.” In that investors fix up often run down properties and put them back on the market, the economist said: “What's wrong with that?”
The Fed chairman said the Federal Reserve is “extremely interest in housing” and is trying “to make people aware how central it is to the economy.” Noting that home owners 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-$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.”
