Is The Housing Recovery Just an Illusion Created by the Federal Reserve?

By Christopher Matthews – The Federal Reserve has kept short term interest rates at near-zero since 2008. In order to stimulate the economy further, the central bank has engaged in quantitative easing (QE) or the purchase of U.S. treasury bonds and mortgage debt in order to drive down long-term interest rates as well. The most recent round of QE was specifically aimed at mortgage-backed securites (MBS), and was effective at lowering mortgage rates to all-time lows.

Our economy is undoubtedly better off by being in a situation where home prices are rising rather than falling. But this analysis does beg the question: What happens when the Fed tries to extricate itself from quantitative easing? How will homeowners react when — because of the Fed’s selling of MBS — their home values plummet? more> http://tinyurl.com/byyxhla

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Wall Street warns against using eminent domain to seize underwater mortgages

Eminent Domain Gate And Wall (Photo credit: Steve Soblick)

By Peter Schroeder – With many areas of the country still digging out from the housing crisis, some local governments are considering taking on the underwater mortgages at a substantially lower price, thus making them more affordable for the borrower.

With policymakers at the federal, state and local level struggling to find a way to relieve the burden of unaffordable home loans, the eminent domain idea is being met with open ears.

The receptive response to the idea has put the financial sector on high alert. Firms are warning that a governmental action to seize private property to reduce its value could throw the entire housing market off kilter. more> http://tinyurl.com/8kc778b

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U.S. banks haunted by mortgage demons that won’t go away

By Rick Rothacker – Lenders like Bank of America Corp and Wells Fargo & Co say they are facing mounting pressure to buy back bad mortgages they sold to investors, signaling that banks‘ home-loan headaches could continue for years.

When selling the mortgages, banks made promises or “representations and warranties” about the loans. Investors can ask banks to buy back soured mortgages if these promises were evidently broken, for reasons such as poor underwriting, insufficient verification of income or other documentation errors.

Banks have fought some of these claims, but most lenders still expect to have to buy back many of the mortgages. more> http://tinyurl.com/7vab96n

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To Fix Housing, Fix Finance

By Martin Neil Baily – Rarely a day goes by without some grim housing news: most recently, “Mortgage Delinquencies Increase,” “Mortgage-Fraud Reports Up 88%,” and “New-Home Sales Sink To Lowest in Six Months.” Until the housing (and job) market recovers, the larger economic recovery will remain stalled. How housing is financed — and the role of the government in that system — is a question that must be addressed by policy makers, and soon.

Fannie Mae and Freddie Mac, the two government-sponsored enterprises that together hold more than $5 trillion in accumulated mortgage risk, were forced into a Treasury conservatorship in September 2008. In order to avoid losses on the mortgage-backed securities that had been issued by these institutions, and a complete implosion of the mortgage market, American taxpayers may be on the hook for up to $224 billion by the time this housing finance chapter is written. There was really no other choice.. more> http://is.gd/y25wsx

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