Fed Still Attending to the Nation’s Housing Sector

The calls are starting to get louder for the presidential candidates to address the nation’s floundering housing sector, particularly foreclosures, underwater mortgages, the fate of Fannie Mae and Freddie Mac and housing affordability in the future. Still, behind the scenes, the Federal Reserve is watching over and directing policy to try and keep the housing sector honest — despite the controversy that comes with election year rhetoric.

Amid numerous reports by media outlets that the housing market is recovering, after its latest meeting, the Federal Open Market Committee came out with a statement dated Aug. 1, 2012. Based on data from June, the FOMC surmised that, “Despite some further signs of improvement, the housing sector remains depressed.”  As a result, Fed Chairman Bernanke and his colleagues announced no change to the 0 to 0.25 percent target range it has set for its earmark federal funds rate.

While maintaining interest rates at historically low levels is a good thing for real estate investors looking to finance the purchase of worthy short sales or bank-owned homes REOs, new federal rules aimed at pulling the reins in on property flippers were proposed just yesterday, according to regulators  including the Fed and the newly created Consumer Financial Protection Bureau.

Under the new federal rules as proposed, all high-risk mortgages would require the lender to obtain an appraisal by a licensed or certified appraiser, including a written inspection of the home’s interior, reported The Washington Post.

A second appraisal would also be required if the property had sold for a lower price in less than six months previous to the present sale, thereby preventing flippers from using inflated appraisals to defraud consumers.

For purposes of the new rules, higher-risk loans are defined as those where the interest rates are above a variable threshold. In this case, the defining yardstick will be the Average Prime Offer Rate, a survey-based estimate of typical mortgage rates, The Washington Post reported.

Bernanke and team have come under criticism from its own ranks (Jeffrey M. Lacker, president of the Federal Reserve Bank of Richmond) has been the sole dissenting vote during the last five votes of the FOMC, and Republican vice-presidential candidate Paul Ryan, who has been reported to favor bifurcating the Fed’s dual mandate to target both low inflation and low unemployment.

Is the Fed biting off more than it chew given the present static nature of the overall economy? Where do you think the Fed should be focusing its efforts at the moment? And will Bernanke still have a job after the November election?

Tell us what you think.

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Related News
Foreclosures and the Presidential Race
The High-End Foreclosure Sales Non Sequitur
New Rules Help Homeowners Avoid Foreclosure

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