Chicago Fed chief defends housing suggestions

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Updated: January 27, 2012 12:49PM

When Charles L. Evans talks, people listen.

The president and CEO of the Federal Reserve Bank of Chicago recently spoke to about 200 business leaders at a presentation sponsored by the Lake Forest-Lake Bluff Rotary Club. They came to hear his personal perspectives on the current economy — and one of the topics was housing.

Evans noted that recent economic activity has been “encouraging” but also that recovery has been “painstakingly slow.” He said that a more vibrant housing market is one of the key improvements needed to boost home prices and lift the overall economy.

He further noted that the Fed had
recently been criticized by some Congressional leaders for issuing a special white paper on housing issues, which also suggested potential policy solutions. Whether perceived as contentious or not, Evans felt the paper focused needed attention on solving the distress sale crisis and improving valuations so that true economic recovery could begin.

“We need a situation where houses can be sold and get the market moving up again,” Evans said.

The National Association of Home Builders and the National Association of Realtors strongly agree with Evans and other Federal Reserve leaders, too. Both NAHB and NAR endorse specific recommendations in the above-noted white paper — such as loosening mortgage lending and refinancing criteria for credit-worthy borrowers.

“The Federal Reserve’s report to Congress confirms what we have been saying for some time: That extraordinarily tight credit conditions are preventing creditworthy borrowers from obtaining home loans and this is harming the housing market and the broader economy,” said NAHB Chairman Bob Nielsen.

The overall message is clear. Federal Reserve leaders know it, as do builders and Realtors. Much more must be done to solve the housing crisis — even if those solutions prove politically unpopular.

Among key excerpts from the white paper, “The U.S. Housing Market: Current Conditions and Policy Considerations”:

“The extraordinary problems
plaguing the housing market reflect in part the effect of weak demand due to high unemployment and heightened uncertainty. But the problems also reflect three key forces originating from within the housing market itself: a persistent excess supply of vacant homes on the market, many of which stem from foreclosures; a marked and potentially long-term downshift in the supply of mortgage credit; and the costs that an often unwieldy and inefficient foreclosure process imposes on homeowners, lenders, and communities.

“Looking forward, continued
weakness in the housing market
poses a significant barrier to a more vigorous economic recovery. ... At the same time, there is scope for policy-makers to take action along three dimensions that could ease some of
the pressures afflicting the housing market. In particular, policies could be considered that would help moderate the inflow of properties into the
large inventory of unsold homes,
remove some of the obstacles preventing creditworthy borrowers from accessing mortgage credit, and limit the number of homeowners who find themselves pushed into an inefficient and overburdened foreclosure pipeline.” (Full text at www.federalreserve.gov/publications.)

Julie Morse is a licensed Realtor
in Illinois and Wisconsin.