Fed's Raskin Q&A: Low Int Rates Impact On Econ Muted By Housg
WASHINGTON (MNI) - The Federal Reserve's low interest rate policy to stimulate the economy has been partly muted because of continuing struggles in the housing market, voting member of the Federal Reserve Open Market Committee Sarah Bloom-Raskin said Monday.
"It's very important that broadly speaking, that we see a translation between lower interest rates and higher rates of growth," Bloom Raskin said answering questions at the University of Maryland's 'Distinguished Speaker Series' in Washington.
"That piece of the transmission is what is important in having resumed economic activity," Raskin added.
Raskin said because of struggles in the housing market, "one can argue that lower interest rates have not shown through to higher activity in the same way that would be expected under more usual recoveries."
Bloom Raskin said an oversupply of homes has put downward pressure on home prices, hurting consumer balance sheets, resulting in reduced consumer spending and business investment.
The Federal Reserve kept interest rates at historic lows since late-2008 in an effort try and spur investment, particularly housing -- traditionally a very interest rate sensitive industry.
However, housing has not been able to recover because millions of homeowners owe more on their home than it is worth and a legal spat between mortgage servicers and regulators continues to delay foreclosures for homeowners that will inevitably lose their home.
To try and alleviate some of the housing pain and allow mortgage borrowers to take advantage of historically low mortgage interest rates, the Obama Administration has implemented programs such as the Home Affordable Refinancing Program to help borrowers refinance.
Raskin said the HARP program -- which is designed to help borrowers with little or no equity in their home to refinance -- is "well conceived" but there are still impediments that keep it from reaching a broader audience.
"There are obstacles to it, there have been a number of issues that have kept it from being used to a greater effect," Raskin said, mentioning that borrowers with negative equity have difficulty qualifying for the program.
Raskin said the program should be "looked at very carefully with an eye to see if those impediments can be addressed and removed for a greater uptick."
The issue of foreclosure delay's as a result of flawed mortgage servicing is another problem that haunts the housing market.
To try and fix the problem going forward, some regulators, including the Treasury Dept., have suggested that a national mortgage servicing standard be put in place. However, Raskin said she believes states should be able to continue to regulate the industry themselves.
"I am of the view that foreclosure laws need to stay in local control," Raskin said, adding that she does not believe the notion that individual state laws are contributing to the foreclosure slowdown.
"Foreclosure laws and foreclosure reform at the state level is very important, I would not maintain that we need one set of foreclosure laws be applied to all 50 states," she added.
When asked about Qualified Residential Mortgages (QRM) which is arguably one of the most debated pieces of Dodd-Frank regulation, Bloom Raskin was less willing to weigh-in on the issue, rather suggesting that whatever the final determination for a QRM would be it would likely set the "gold standard" for mortgages.
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