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Housing and the Federal Reserve :: November 17, 2009 :: Federal Reserve Bank of Cleveland home | news & media | careers | site map FEDERAL RESERVE BANK o f CLEVELAND A bout U Tours For the Public News & Media Com munit y D e velopm ent S tream ing Media Forefront M agazine Speakers Bureau I Our IRegion I Research I Ban kin g I Learning Center Savings Bonds Home > For th e Public > News and Media > Speeches > 2009 > Housing and th e Federal Reserve Housing and the Federal Reserve Additional Information Introduction I am v e ry p le a s e d to b e h e r e to d a y to p a r tic ip a te in th is 1 1 th a n n u a l Ohio H ousing C o n fe re n c e , b u t I w ish w e w e r e co m in g to g e th e r u n d e r d if f e r e n t c irc u m s ta n c e s . As e v e ry o n e in th is room k n o w s all to o w ell, w e a r e j u s t now b eg in n in g to e m e r g e fro m th e m o st s e v e r e e c o n o m ic crisis to h it th is c o u n try sin c e th e G r e a t D e p re ss io n . And th o u g h w e h av e s e e n so m e signs t h a t th e w o rs t m ay b e o v e r, th e housing in d u stry is n o t o u t o f th e w o o d s y e t; nor is th e b r o a d e r e c o n o m y . I’m s u re t h a t e v e ry o n e in th is room has b e e n c h a lle n g e d in so m e w ay by th e e v e n ts o f th e p a s t fe w y e a r s . As a n a tio n a l p o lic y m a k e r, living th ro u g h th is crisis has b e e n a hum b lin g e x p e r ie n c e . It h as b e e n so b e rin g to r e a liz e t h a t fin a n c ia l m a rk e t p a r tic ip a n ts an d re g u la to rs a lik e did n o t fu lly a p p r e c ia te how c o m p le x a n d in te r c o n n e c te d o u r fin a n c ia l m a rk e ts h a d b e c o m e . Nor did w e fu lly a p p r e c ia te ho w m uch risk w as bu ild in g up in th e fin a n c ia l sy ste m . T h e se a r e a fe w o f th e m an y lesso n s all o f us h a v e le a r n e d o v e r th e p a s t c o u p le o f y e a rs . Sandra Pianalto P resident and CEO, Federal Reserve Bank o f Cleveland Ohio Housing Finance Agency and Ohio Capital Corporation for Housing Ohio H ousing C o n fe re n c e 2 0 0 9 , C olum bus, OH November 17, 2009 At th e F e d e ra l R eserv e , w e now h av e a b e t t e r u n d e rs ta n d in g o f th e co n d itio n s t h a t le d to th e c h a lle n g e s w e f a c e , b u t u n d e rs ta n d in g a lo n e is n ’t e n o u g h . W e h a v e b e e n re sp o n d in g vig o ro u sly on m any fro n ts , a n d th e r e is s till m o re w o rk to d o . I know t h a t a ll o f you in th is room h a v e also b e e n s p e n d in g e n d le s s hou rs w o rk in g to find so lu tio n s to th e p ro b le m s o f d e lin q u e n c ie s , f o re c lo s u re s , a n d ac c e ss to c r e d it. P ro g ress is b ein g m a d e , b u t i t w ill ta k e th e w o rk o f m any an d a c o n s id e ra b le a m o u n t o f tim e fo r housing m a rk e ts to fu lly re c o v e r. T o d ay I w ill ta lk a b o u t so m e o f th e F e d e ra l R e se rv e ’s e f f o rts . I w ill fir s t d iscu ss th e ro le o f th e F e d e ra l R e serv e as a m o n e ta ry p o lic y m a k e r a n d th e a c tio n s w e h av e b e e n ta k in g to p u t th e ec o n o m y on th e ro a d to re c o v e ry . I w ill th e n sp e a k a b o u t th e r e g u la to ry s te p s w e a r e ta k in g to e n s u re th e s a f e ty o f th e fin a n c ia l s e c to r a n d to p r o te c t c o n s u m e rs a n d b o rro w e rs. I w ill c o n c lu d e by te llin g you a b o u t o u r a c tiv itie s h e r e in Ohio a n d ac ro ss o u r F e d e ra l R eserv e D istric t as a c o m m u n ity d e v e lo p m e n t p a r tn e r. P le a se n o te t h a t th e v iew s I e x p re s s to d a y a r e my ow n an d do n o t n e c e s sa rily r e f le c t th e v iew s o f my c o lle a g u e s in th e F e d e ra l R eserv e S y stem . Monetary Policy L et m e b eg in , th e n , w ith o u r m o n e ta ry policy re s p o n s e . T he c o m b in a tio n o f th is s e v e r e housing c o n tra c tio n an d th e s te e p n a tio n a l re c e ssio n is n o t a c o in c id e n c e . D uring th e boom y e a rs le a d in g up to th is d e b a c le , housing fin a n c e b e c a m e in te r tw in e d w ith b ro a d e r fin a n c ia l a n d e c o n o m ic d e v e lo p m e n ts . Rising p ro p e rty v a lu e s s u p p o r te d m o re c o n s u m e r s p e n d in g , ban k in g p ro fits, a n d m o re http://www.clevelandfed.org/For_the_Public/News_and_Media/Speeches/2009/Pianalto_20091117.cfm[4/29/2014 1:59:49 PM] Housing and the Federal Reserve :: November 17, 2009 :: Federal Reserve Bank of Cleveland le n d in g o f all kinds. W hen th is g ro w th c y c le b eg a n to u n w in d , an d spin in th e o th e r d ir e c tio n , m o r tg a g e -r e la te d lo sses e r o d e d th e c a p ita l o f m a n y fin a n c ia l in s titu tio n s an d c u t d e e p ly in to th e w e a lth o f m an y h o m e o w n e rs. T h e se p ro b le m s le d fin a n c ia l in s titu tio n s to r e d u c e le n d in g to c o n s u m e rs a n d b u sin e sse s, a n d in d u c e d c o n s u m e rs to c u r ta il th e ir s p e n d in g . W eak n ess in th e housin g m a rk e ts r e s tr a in e d th e b r o a d e r e c o n o m y w h ich , in tu r n , f u r th e r w e a k e n e d th e housing m a rk e ts . As you know , th e F e d e ra l R e se rv e h as ta k e n h isto ric m e a s u re s to a d d re s s th e s e p ro b le m s. M o n e tary po licy is th e re sp o n sib ility o f th e F e d e ra l O pen M a rk e t C o m m itte e , o r FOMC, w h ich c o n s ists o f th e m e m b e rs o f th e B oard o f G o v ern o rs in W ashingto n a n d th e 12 R eserv e Bank p re s id e n ts fro m ac ro ss th e n a tio n . This d e c e n tr a liz e d s tr u c tu r e e n s u re s t h a t th e C o m m itte e ta k e s in to a c c o u n t M ain S tr e e t as w e ll as W all S tre e t. T h e FOMC h as a d u a l m a n d a te fro m C o n g ress—to m a in ta in p ric e s ta b ility an d to p ro m o te m axim u m s u s ta in a b le e c o n o m ic g ro w th . W hen e c o n o m ic a c tiv ity w e a k e n s , th e FOMC ty p ic a lly lo w ers its s h o r t te rm policy ta r g e t, know n as th e f e d e r a l fu n d s r a te , a n d th is tim e w as no e x c e p tio n . As th e o u tlo o k fo r th e e c o n o m y d e te r io r a te d , th e FOMC r e p e a te d ly c u t th e f e d e r a l fu n d s r a te ta r g e t, a n d it no w s ta n d s a t e s s e n tia lly z e ro . This re c e ssio n has b e e n f a r fro m a ty p ic a l o n e , h o w e v e r. M any fin a n c ia l m a rk e ts s e iz e d up, crip p lin g th e flo w o f c r e d it to m an y p a r ts o f th e e c o n o m y , in c lu d in g su ch im p o r ta n t Main S tr e e t a c tiv itie s as housing fin a n c e , a u to lo a n s a n d e v e n s tu d e n t lo a n s. F e d e ra l R eserv e o ffic ia ls k n ew t h a t w e h a d to do m o re th a n re ly on in te r e s tr a te a c tio n s a lo n e . B eginning in th e sp rin g o f 2 0 0 8 , w e d e s ig n e d a n u m b e r o f n e w le n d in g p ro g ra m s an d f a c ilitie s to g e t c r e d it flow ing o n c e ag ain to th e s e im p o r ta n t fin a n c ia l m a rk e ts . O ur o b je c tiv e w as to h e lp th a w a b ro a d ra n g e o f fin a n c ia l m a rk e ts an d s t e e r th e w id e r e c o n o m y a w a y fro m a cliff. W e h av e also ta k e n u n p r e c e d e n te d s te p s in how w e c o n d u c t m o n e ta ry policy. For in s ta n c e , w e h av e b e e n p u rc h a sin g m o rtg a g e b a c k e d s e c u r itie s issu ed by th e g o v e r n m e n t-s p o n s o re d e n te r p ris e s F re d d ie M ac, F an n ie M ae, a n d G innie M ae. O ur s tr a te g y h as b e e n to r e d u c e th e c o s t an d in c re a s e th e a v a ila b ility o f c r e d it fo r h o m e p u rc h a se s, w h ich w e e x p e c te d w o u ld s u p p o rt hou sin g an d fin a n c ia l m a rk e ts m o re g e n e ra lly . W e a r e now w e ll in to th is p ro g ra m , w hich w ill c u lm in a te in th e p u rc h a se o f $ 1 .2 5 trillio n in a g e n c y m o rtg a g eb a c k e d s e c u r itie s by n e x t sp rin g . T oday, m o rtg a g e r a te s s ta n d m o re th a n a fu ll p e r c e n ta g e p o in t lo w e r th a n th e y w e r e o n e y e a r ago. F o rtu n a te ly , w e h av e s e e n so m e r e c e n t p ro g re ss in th e housing s e c to r . H ousing p ric e s an d s a le s le v els h av e b eg u n to s ta b iliz e , a n d in th e f ir s t h a lf o f th e y e a r , re fin a n c in g w as up by m o re th a n 15 0 p e r c e n t, w h ich h as lo w e re d th e d e b t b u rd e n o f m a n y h o m e o w n e rs. Of c o u rse , th e A d m in istra tio n an d C ongress also h ad a s tro n g h a n d in h elp in g to s ta b iliz e r e a l e s t a t e m a rk e ts -m o s t n o ta b ly w ith th e f ir s t tim e h o m e -b u y e r ta x c r e d it. T h e c o m b in e d e f f o rts o f th e s e in itia tiv e s s e e m to b e w o rking. T h re e o u t o f fiv e h o m e s a le s a r e n o w to f ir s t tim e b u y ers, c o m p a re d w ith o n e in fiv e in a ty p ic a l m a rk e t. B ut th is also illu s tr a te s fo r m e t h a t m an y m o v e -u p h o m e p u rc h a s e rs a r e still s ittin g on th e sid e lin e s, so th e r e is a long w a y to go b e fo re an y o n e c a n b r e a th e a sigh o f re lie f. A t th is p o in t, m o n e ta ry policy c a n m o st e f f e c tiv e ly s u p p o r t th e ho u sing s e c to r by fo s te rin g s tr o n g e r g ro w th in th e b ro a d e r e c o n o m y , w h ich w o u ld le a d to m o re s ta b le p ro p e rty v a lu e s , in c re a s e d c o n s u m e r c o n fid e n c e , an d lo w e r u n e m p lo y m e n t. E conom ic c o n d itio n s h av e c e r ta in ly im p ro v e d sin c e th e b eg in n in g o f th is y e a r , b u t re so u rc e u tiliz a tio n le v els s till re m a in low , b a n k le n d in g is r e s tr a in e d , a n d http://www.clevelandfed.org/For_the_Public/News_and_Media/Speeches/2009/Pianalto_20091117.cfm[4/29/2014 1:59:49 PM] Housing and the Federal Reserve :: November 17, 2009 :: Federal Reserve Bank of Cleveland c r e d it te rm s a r e tig h t. I e x p e c t o u r re c o v e ry to b e a g ra d u a l an d bum py one. Regulatory Issues O f c o u r s e , th e w o rk o f th e F e d e ra l R e se rv e a f f e c ts th e hou sin g s e c to r in w ays o th e r th a n th ro u g h m o n e ta ry policy. So le t m e now tu rn to th e F e d e ra l R e se rv e ’s su p e rv iso ry a n d re g u la to ry ro le s. W hile m uch of th e in itia l fin a n c ia l crisis o rig in a te d in th e m o rtg a g e m a rk e ts , th e r e is s till m uch to c o r r e c t th e r e a n d in th e b ro a d e r fin a n c ia l m a rk e ts . E veryone w ith a ro le an d a s ta k e in th e fin a n c ia l sy ste m n e e d s to ta k e a c a r e f u l look a t th e v a rio u s fa ilu re s o f m a rk e t in c e n tiv e s an d re g u la tio n s t h a t s u p p o r te d m o rtg a g e s a n d s e c u r itie s t h a t a r e now b ein g d e s c rib e d as “ to x ic .” In looking a t w h a t w e n t w ro n g , w e n e e d to r e a c t in a th o ro u g h an d th o u g h tfu l m a n n e r to lim it s im ila r p ro b le m s in th e f u tu r e . W e a t th e F e d e ra l R e serv e h av e b e e n e x a m in in g o u r p a s t a c tio n s to u n d e rs ta n d w h e r e o p p o r tu n itie s a r e a v a ila b le fo r s tr e n g th e n in g o u r su p e rv iso ry a p p ro a c h . W h e re w e can a c t u n d e r e x istin g a u th o ritie s , w e a r e ta k in g s tro n g s te p s to m a k e o u r fin a n c ia l sy ste m s a fe , so u n d , a n d fa ir. W e h av e b ro a d e n e d th e sc o p e o f o u r su p e rv isio n . For e x a m p le , w e h av e h e a rd c o m p la in ts t h a t w h ile a given b a n k m ig h t b e co m p ly in g w ith re g u la tio n s, o n e o f th e s a m e b a n k ’s holdin g c o m p a n y a f filia te s m ig h t n o t b e. To a d d re s s th is issu e, tw o m o n th s ag o th e F e d e ra l R eserv e a n n o u n c e d t h a t w e w ill c o n d u c t c o n s u m e r c o m p lia n c e ex am s o f n o n b a n k su b sid ia rie s o f b a n k h o ld in g c o m p a n ie s an d fo re ig n b an k in g o rg a n iz a tio n s, an d w e w ill in v e s tig a te c o n s u m e r c o m p la in ts a g a in s t th e m . O ur goal is to e n s u re c o n s is te n t p r a c tic e s w ith in all s u b sid ia rie s o f b a n k holding c o m p a n ie s, n o t ju s t b anks. In a d d itio n to th e s e an d o th e r su p e rv iso ry e f f o r ts , th e F e d e ra l R eserv e h as a d o p te d n e w re g u la tio n s a n d re v ise d e x istin g o n e s to p r o te c t c o n s u m e rs. In Ju ly 2 0 0 8 , th e F e d e ra l R e serv e s tr e n g th e n e d a key re g u la tio n d e s ig n e d to p r o te c t c o n s u m e rs in th e m o rtg a g e m a rk e t fro m u n fa ir, a b u s iv e , o r d e c e p tiv e le n d in g a n d se rv ic in g p ra c tic e s . T h e ru le also e s ta b lis h e s a d v e rtisin g s ta n d a r d s , re q u ire s c e r ta in m o rtg a g e d isc lo su re s to b e given to c o n s u m e rs e a r lie r in th e tr a n s a c tio n , a n d a d d s im p o r ta n t p ro te c tio n s fo r a n ew ly d e fin e d c a te g o ry o f "h ig h e r-p ric e d m o rtg a g e loans." W hen d e v e lo p in g n e w re g u la tio n s, th e B oard o f G o v ern o rs is w o rk in g c a re fu lly an d c r e a tiv e ly to c r a f t re g u la tio n s t h a t p e o p le c a n b e t t e r u n d e r s ta n d e v e n using c o n s u m e r fo cu s g ro u p s to give us f e e d b a c k on th e c la rity o f o u r p ro p o sals. M any o f you a r e also a w a re t h a t th e F e d e ra l R e serv e h as ru le -w ritin g a u th o rity fo r th e provisions o f th e C o m m u n ity R e in v e stm e n t A ct (CRA). T h e CRA has b e e n a sig n ific a n t d riv e r o f a c c e ss to c r e d it an d c a p ita l in tr a d itio n a lly u n d e r-s e rv e d c o m m u n itie s sin c e it w as p assed in 1 9 7 7 . Y et, as w e ’re all a w a re , th e fin a n c ia l s e rv ic e s la n d s c a p e has c h a n g e d d r a m a tic a lly in th e p a s t 3 0 y e a rs , an d th e p ro b le m s w e fa c e a r e now d if fe r e n t. For e x a m p le , th e r e is e v id e n c e t h a t CRA is o f lim ite d u se in a d d re ssin g th e p ro b le m o f f o re c lo s u re sp illo v e rs, e s p e c ia lly w h e n it c o m e s to d e a lin g w ith r e a l- e s ta te - o w n e d —o r REO—p r o p e r tie s an d th e d isp o sitio n o f v a c a n t p r o p e r tie s . This is an e s p e c ia lly im p o r ta n t issu e f o r O hio, w h ich is s a d d le d w ith a v e ry high in v e n to ry o f REO p ro p e r tie s . As you know , th e CRA w as d e s ig n e d to e n c o u ra g e b an k s to s u p p o rt b u ild in g a n d re n o v a tio n , n o t to t e a r dow n d ila p id a te d h o u sin g . But o n e o f th e CRA’s h allm a rk s is its fle x ib ility . T h e re m ay b e w ay s to a d a p t th e re g u la tio n to e n c o u ra g e le n d e rs to s u p p o rt th e kinds o f ho u sing a c tiv itie s t h a t m an y c o m m u n itie s n e e d in th is tim e o f crisis. I http://www.clevelandfed.org/For_the_Public/News_and_Media/Speeches/2009/Pianalto_20091117.cfm[4/29/2014 1:59:49 PM] Housing and the Federal Reserve :: November 17, 2009 :: Federal Reserve Bank of Cleveland th in k th e CRA c a n b e c o m e a m o re e f f e c tiv e to o l in p roviding in c e n tiv e s fo r b an k s to d o n a te so m e o f th e d is tre s s e d r e a l e s t a t e th e y ow n to q u a lifie d c o m m u n ity d e v e lo p m e n t c o rp o ra tio n s , a n d to e n g a g e in s e rv ic e s an d in v e s tm e n ts t h a t b e n e f it f o re c lo s u re m itig a tio n an d n e ig h b o rh o o d re c o v e ry e f f o r t s . T h e F e d e ra l R eserv e B ank o f C lev e lan d is c u r r e n tly w orking w ith o th e rs on a p r a c tic a l w ay to a d a p t th e CRA fo r th e s e p u rp o se s, a lth o u g h u ltim a te ly , c h a n g e s in CRA re g u la tio n s involve th e o th e r b a n k r e g u la to ry a g e n c ie s in a d d itio n to th e F e d e r a l R e se rv e . Community Development W hile th e s e e f f o rts a r e im p o r ta n t, re g u la tio n a lo n e is n o t a p a n a c e a an d o f te n on ly a d d re s s e s p ro b le m s a f t e r th e y b e c o m e p ro b lem s. D esp ite re n e w e d a c tiv ity on th e re g u la to ry f r o n t by th e F e d e ra l R eserv e a n d o th e r s , w e n e e d s tr a te g ie s to ta c k le th e w id e r housing c h a lle n g e s o f to d a y a n d to m o rro w . T his ra ise s th e th ird a r e a o f fo cu s f o r th e F e d e ra l R eserv e : o u r w o rk as a c o m m u n ity d e v e lo p m e n t p a r tn e r . T h rough th e C o m m u n ity D e v e lo p m e n t fu n c tio n a t e a c h o f th e 12 R eserv e Banks, th e F e d e ra l R e serv e m a in ta in s re la tio n s h ip s w ith c o m m u n ity a n d e c o n o m ic d e v e lo p m e n t p r a c titio n e r s . W e reg u la rly s h a re o u r fin d in g s w ith b a n k e rs an d le g isla to rs a t th e s t a t e a n d n a tio n a l le v e ls, a n d w ith o u r c o lle a g u e s a t th e B oard o f G o v ern o rs in W a sh in g to n . And w e u se th e k n o w led g e w e gain fro m w o rk in g w ith you to inform o u r su p e rv iso ry a n d re g u la to ry po licy re sp o n sib ilitie s . W e also a p p ly th is k n o w led g e in o u r w o rk w ith o th e r g o v e rn m e n t a g e n c ie s a t all le v els to p ro m o te c o m m u n ity d e v e lo p m e n t. This le a d s to m o re fle x ib le a n d ta r g e te d so lu tio n s t h a t c a n m a k e a d if fe r e n c e in th e n e ig h b o rh o o d s w h e r e you w ork. A t th e F e d e ra l R e serv e Bank o f C le v e la n d , a c ritic a l th e m e t h a t has s u rfa c e d fro m o u r c o m m u n ity d e v e lo p m e n t w o rk —a n d t h a t c o n tin u e s to g u id e o u r e f f o r ts —is t h a t re c o v e ry in Ohio w ill b e a f f e c te d by th e c h a lle n g e s w e f a c e as a slo w -g ro w th reg io n , w h e r e p o p u la tio n d e c lin e s o v e r th e y e a rs le f t a se rio u s e x c e s s o f housing w e ll b e fo re th e crisis b e g a n . E ven th o u g h Ohio n e v e r e x p e r ie n c e d th e s h a rp a p p r e c ia tio n in housing p ric e s t h a t o th e r p a r ts o f th e c o u n try d id e a r lie r in th is d e c a d e , th e p ain o f th e crisis h as b e e n j u s t as re a l h e r e , if n o t m o re so. In so m e p a r ts o f O hio, housing sa le s b e g a n to w e a k e n as e a rly as 2 0 0 4 . Sim ply p u t, O hio’s p ro b le m s a r e m o re e n tr e n c h e d b e c a u s e th e y a r e tie d to s tr u c tu r a l an d n o t j u s t c y c lic a l w e a k n e s se s in th e s t a t e ’s econom y. This m a k es it all th e m o re n e c e s sa ry to in v e s tig a te w h a t housing p ro g ra m s m ig h t w o rk w ith in o u r reg io n . L ast N o v em b er, w e h e ld a s e rie s o f p u b lic e v e n ts to c o n n e c t d is tre s s e d b o rro w e rs, c o u n s e lo rs, an d loan s e rv ic e rs to fin d w ay s to k e e p p e o p le in th e ir h o m e s. At t h a t tim e , w e th o u g h t loan m o d ific a tio n s w o u ld p ro v e to b e an im p o r ta n t to o l fo r sta b iliz in g th e housing m a rk e t. O u tre a c h to d is tre s s e d b o rro w e rs has m e t w ith m ix ed su c c e s s, a n d o n ly a v ery sm a ll p e r c e n ta g e o f d is tre s s e d loans has b e e n m o d ifie d su c c e ssfu lly ac ro ss th e n a tio n --a n d th e fig u re has b e e n e v e n lo w e r h e r e in O hio. W e ll-in te n d e d e f f o rts o f te n d o n ’t w o rk w e ll in p r a c tic e fo r any n u m b e r o f re a so n s. W e d isc o v e re d a v a r ie ty o f f a c to rs t h a t in h ib ite d th e loan m o d ific a tio n p ro c e ss, so m e o f w h ich a r e c u r r e n tly b ein g a d d re s s e d by le n d e rs , s e rv ic e rs , c o u n se lin g a g e n c ie s , a n d p ro g ram a d m in is tra to rs . O th e r f a c to rs a r e n o t so e a sily a d d re s s e d , su ch as th e f a c t t h a t m an y o f th e m o rtg a g e loans t h a t b o rro w e rs re c e iv e d w e re p o o rly u n d e r w ritte n in th e f ir s t p la c e . And th e r e a r e n e w im p e d im e n ts . W e a r e now fin d in g t h a t th e re a so n m o st b o rro w e rs http://www.clevelandfed.org/For_the_Public/News_and_Media/Speeches/2009/Pianalto_20091117.cfm[4/29/2014 1:59:49 PM] Housing and the Federal Reserve :: November 17, 2009 :: Federal Reserve Bank of Cleveland give fo r n e e d in g a s s is ta n c e is a loss in in c o m e d u e to th e re c e ss io n . In o th e r w o rd s, th e w e a k e c o n o m y its e lf is g e n e r a tin g m o re d is tre s s e d b o rro w e rs, ad d in g to th e e x istin g p ro b le m s w ith in th e h o u sin g an d m o rtg a g e in d u s trie s . W e know t h a t loan m o d ific a tio n s a lo n e w ill n o t b e e n o u g h to a d d re s s th e crisis. If a h o m e o w n e r c a n n o t av o id fo re c lo s u re an d has to le a v e his o r h e r h o m e , w h a t h a p p e n s to th e p ro p e r ty if it h a p p e n s to b e in a p la c e w h e r e th e r e is e i th e r no re a d y b u y e r o r sim ply to o fe w p e o p le le f t to o c c u p y y e t o n e m o re e m p ty h o u se am o n g m an y o th e rs ? T h e N eigh b o rh o o d S ta b iliz a tio n P ro g ram , o r NSP, w a s p u t in p la c e to h elp m u n ic ip a litie s a c q u ire such p r o p e r tie s fo r p o ssib le re h a b ilita tio n an d r e s a le , o r in so m e c a s e s , d e m o litio n a n d la n d b an k in g . T h e F e d e ra l R eserv e Bank o f C lev e lan d an d th e F e d e ra l R e serv e Bank o f R ichm ond a r e p a rtn e rin g w ith th e N atio n al V a c a n t P ro p e rtie s C am p aig n to c o n d u c t c a s e s tu d ie s o f d if f e r e n t kinds o f c o m m u n itie s t h a t re c e iv e NSP fu n d s to fin d o u t w h e r e th e NSP is w o rk in g , an d w h e re im p ro v e m e n ts m ig h t n e e d to b e m a d e . W e a r e sh a rin g o u r findings h e r e , in o u r reg io n , an d also w ith th e D e p a rtm e n t o f H ousing an d U rb an D ev e lo p m e n t. O u r C o m m unity D e v e lo p m e n t o ffic e also c o n d u c ts re s e a rc h an d a n a ly z e s d a t a to u n c o v e r p a tte r n s , tr e n d s , an d re la tio n sh ip s in th e ho u sing m a rk e ts . T hrough th is body o f k n o w led g e , w e a r e gaining v a lu a b le in sig h t in to o th e r p o te n tia l so lu tio n s, w h e r e p ro b le m s a re o c c u rrin g , an d w h e th e r th e r e a r e a n y s im ila ritie s o r d iffe re n c e s th ro u g h o u t th e reg io n t h a t c a n h e lp im p ro v e p u b lic policy. L et m e s h a re an e x a m p le o f th is a p p ro a c h in p r a c tic e . D ata an a ly sis is h elp in g us u n c o v e r w h a t f a c to rs c o n tr ib u te d to v e ry d if f e r e n t f o re c lo s u re r a te s in 2 0 0 7 am o n g d e m o g ra p h ic a lly sim ila r n e ig h b o rh o o d s in C lev e lan d an d P ittsb u rg h . H ere w e h av e tw o sim ila r c o m m u n itie s t h a t a r e lo c a te d in d if f e r e n t s ta te s , w ith d if f e r e n t legal an d re g u la to ry e n v iro n m e n ts . Y et C le v e la n d ’s fo re c lo s u re r a te s a r e f a r g r e a te r th a n P itts b u rg h ’s, e s p e c ia lly in p o o r n e ig h b o rh o o d s. O ne m a jo r d isc o v ery o f o u r re s e a r c h w a s t h a t m o st o f th e m o rtg a g e le n d in g in C le v e la n d ’s p o o re s t a r e a s w a s o rig in a te d by a sm all n u m b e r o f n o n b a n k m o rtg a g e c o m p a n ie s. H ow ev er, th is s o u rc e of le n d in g w as n o t n e a rly as m uch o f a p ro b le m in P itts b u rg h . R e sid e n ts o f p o o r C lev e lan d n e ig h b o rh o o d s a p p e a r to h a v e less a c c e ss to , o r less re lia n c e o n , tr a d itio n a l fin a n c ia l s e rv ic e p ro v id ers. W e a r e w o rk in g to u n d e rs ta n d w hy su ch d if fe r e n c e s e x is t b e tw e e n th e fo re c lo s u re e x p e r ie n c e s o f th e s e tw o c o m m u n itie s a n d w h e re s o m e im p ro v e m e n ts m ig h t b e fo u n d , such as in th e w a y s ta te s r e g u la te a n d su p e rv is e th e m o rtg a g e o rig in a tio n p ro c e ss. O th e r o p p o r tu n itie s m ig h t b e fo u n d in h o m e o w n e r c o u n se lin g a n d a s s is ta n c e p ro g ra m s. O ur B ank’s re s e a r c h is now fo cu sin g on sp e c ific a s p e c ts of p re v e n tio n , re g u la tio n , a n d e n f o r c e m e n t m e a su re s ac ro ss s ta te s th a t m ig h t h e lp e x p la in d if fe r e n c e s in fo re c lo s u re e x p e r ie n c e s . S ta te and lo c al p o lic y m a k ers h av e to ld us t h a t th e in fo rm a tio n fro m th is re s e a r c h has b e e n u se fu l in h elp in g s h a p e r e g u la to ry p ro p o sa ls an d h o m e o w n e r a s s is ta n c e p ro g ra m s. T h e w o rk u n d e r ta k e n by th e F e d e ra l R e serv e in th e a r e a of c o m m u n ity d e v e lo p m e n t aim s to h e lp low - an d m o d e ra te - in c o m e c o m m u n itie s, b u t n o n e o f o u r c o m m u n ity d e v e lo p m e n t e f f o rts c a n p o ssibly o f f s e t th e losses a n d h a rd sh ip t h a t th e s e c o m m u n itie s h av e e x p e r ie n c e d . D ecad es o f p ro g re ss h av e b e e n w ip e d aw a y in m any lo w -in c o m e c o m m u n itie s in th is d r a m a tic tw o -y e a r b u rs t o f f o re c lo s u re s . T h e F e d e ra l R e se rv e ’s a c tiv itie s a r e o n ly a sm a ll p a r t of a w id e r e f f o r t involving all o f you. Conclusion http://www.clevelandfed.org/For_the_Public/News_and_Media/Speeches/2009/Pianalto_20091117.cfm[4/29/2014 1:59:49 PM] Housing and the Federal Reserve :: November 17, 2009 :: Federal Reserve Bank of Cleveland In co n c lu sio n , I w a n t to e m p h a s iz e t h a t th e F e d e ra l R eserv e re c o g n iz e s th e n e e d fo r a c tio n an d t h a t w e h a v e b e e n ag g re ssiv e in m o n e ta ry policy, ban k in g su p e rv isio n , c o n s u m e r p ro te c tio n re g u la tio n , a n d c o m m u n ity d e v e lo p m e n t. C o llec tiv e ly , th e s e e ffo rts a r e d e s ig n e d to h e lp r e s to r e h o using m a rk e ts in p u rsu it o f a b e t t e r fu n c tio n in g ec o n o m y . H ow ever, th e s c a le o f th e re c e ssio n , th e fin a n c ia l tu rm o il, a n d th e fo c u se d im p a c t o f th e crisis on m an y c o m m u n itie s p o se an u n p r e c e d e n te d c h a lle n g e to all p o lic y m a k ers. W hile w e c e r ta in ly s e e o u rse lv e s as p a r t o f th e s o lu tio n , m any p a r tn e rs a n d m uch tim e w ill b e n e e d e d to h e a l th e s e p ro b lem s. I t’s going to ta k e a c r e a tiv e , c o o r d in a te d a n d c o lla b o ra tiv e e f f o r t to g e t o u r housing m a rk e t b a c k on tr a c k —e s p e c ia lly h e r e in O hio. T h a t’s w h y I e n c o u ra g e you to p le a s e k e e p knocking a t o u r d o o r. L et us know w h a t y o u ’re th in k in g , w h a t y o u ’re fin d in g , a n d ho w you th in k w e c a n h elp . Careers | Diversity | Privacy | Terms of Use | Contact Us | Feedback | RSS Feeds http://www.clevelandfed.org/For_the_Public/News_and_Media/Speeches/2009/Pianalto_20091117.cfm[4/29/2014 1:59:49 PM]
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