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Election year politics cloud Federal Reserve housing plan

Duty to Share

Bernanke stressed that the white paper — one of only a handful the Fed has produced in recent years — was drawn up in response to inquiries from Capitol Hill and elsewhere.

Last October, at a closed-door meeting with Senate Democrats, Bernanke was pressed on housing. He told lawmakers the central bank would likely soon have ideas to share, according to two senators he spoke with.

The release of the report, however, took months as it got caught in the Fed's internal vetting process. Bernanke paid careful attention to every detail, and penned his own letter to attach to the paper.

Former Fed Governor Mark Olson said the central bank likely felt a duty not only to dig into what was holding back a housing recovery, but also to share its findings.

“When you've assembled research like that, it has limited value if you keep it to yourself. The value is putting it out for public discussion and hopefully implementation,” he said.

Fed Governors Elizabeth Duke and Sarah Raskin oversaw the effort. Duke, a Bush appointee, was a former community banker who had seen what could happen when banks became saddled with foreclosed properties. Raskin, appointed by Obama, was a former state banking regulator who had focused on mortgage servicing issues since joining the Fed.

An assistant director of research at the Fed, Karen Pence, led the group of staff which combined economic and regulatory skills. Pence had studied the rise in mortgage defaults and investigated subprime mortgages in two papers published in 2009.

“We as a nation currently have a housing market that is so severely out of balance that it's hampering our economic recovery,” Duke told a Fed housing conference in September.

In her remarks, which aired some of the proposals eventually included in the white paper, she called for eliminating the obstacles that were preventing millions of homeowners from refinancing into cheaper mortgages, a signal of support for an Obama administration plan to revamp the government's main refinancing initiative.

She also suggested making it easier for Fannie Mae and Freddie Mac — which along with the Federal Housing Administration own about half of all foreclosed properties in the United States — to convert those units into rentals, an approach the Obama administration was already considering.

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