Government

Federal Reserve Chairman Ben Bernanke said at a press conference Wednesday that ""ongoing drags from troubled housing conditions and still tight credit"" have led Fed officials to downgrade their forecasts for short-term economic growth. Bernanke quite frankly told reporters that problems in the housing sector are a big reason why our economy is not recovering more quickly. Despite the diminished outlook and Bernanke's repeated references to the depressed housing market, the Federal Reserve announced no new policy actions.

After falling to a 13-year low during the second quarter, the U.S. homeownership rate posted a highly unexpected rise in the third quarter. Data released by the Census Bureau Wednesday puts the nation's homeownership rate at 66.3 percent. That's up from 65.9 percent at mid-year. With foreclosures forcing homeowners out of their homes and buyers waiting on the sidelines as home values declined, the rate has been heading south for quite some time. In fact, the third-quarter rise is the first in two years.

As several large servicers begin the lengthy process of an independent foreclosure review, Rep. Maxine Waters of California is repeating her request that the process be made public. Waters addresses several concerns in her most recent request, including the difficulty of reaching some of the affected borrowers, conflicts of interests between the banks and the independent reviewers, and the qualifications of those contracted to audit foreclosure cases. Fifteen of Waters' colleagues joined her in her appeal for transparency.

As of Tuesday, HUD's Mortgage Review Board is suspending Houston-based Allied Home Mortgage Corporation from originating or underwriting new mortgages insured by the Federal Housing Administration (FHA), and Ginnie Mae is suspending the lender from issuing bonds through its mortgage-backed securities program. HUD also suspended James C. Hodge, Allied's president and CEO and may debar Hodge and Jeanne L. Stell, EVP of Allied Home Mortgage.

The Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board both announced Tuesday that the independent foreclosure reviews of 14 large servicers issued in April are now under way. About 4.5 million borrowers could have their loans reviewed and potentially be compensated for imposed financial hardship, according to a previous statement by the OCC. The federal regulator says the review will take several months due to the sheer volume of cases to evaluate.

The administration unveiled its revamped Home Affordable Refinance Program (HARP) last week to allow borrowers who owe significantly more than their home is worth take out new loans with lower interest rates. CoreLogic says the impact will be targeted to those markets and local economies that have suffered the most from the housing collapse. The company believes HARP 2.0 will be positive for the GSEs and the origination market, negative for bondholders, and neutral for housing itself because distressed borrowers and shadow inventory are left out of the equation.

Short sales are growing throughout the nation as distressed homeowners and servicers continue to seek alternatives to foreclosure and home buyers increasingly opt for the significant discounts that come with short sales. With 9,145 completed short sales, the Los Angeles area had more short sale transactions than any other metropolitan statistical area (MSA) in the second quarter of this year, according to a recent blog post from RealtyTrac. These short sales came with an average discount of 32 percent and at an average price of $350,237.

State attorneys general and the nation's five largest mortgage servicers could be within weeks of reaching a $25 billion agreement to settle allegations that foreclosures were improperly processed. Details of the settlement terms obtained by DSNews.com indicate that individual servicer penalties will be based on the number of foreclosures they've completed. Collectively, $5 billion would come in the form of cash fines and $20 billion would be satisfied with principal-reducing modifications and refinancing for underwater borrowers.

Long-term, fixed-rate mortgages are often seen as a safe loan product, but one Federal Reserve economist says adjustable-rate mortgages (ARMs) are not as risky as some perceive them to be and did not play a major role in the recent housing crisis. To those who believe payment shocks caused by ARMs were a major player in the foreclosure crisis, Paul Willen, senior economist at the Federal Reserve Bank of Boston, says, the ""data refute that theory."" He says those with ARMs were almost as likely to have seen a payment reduction as a payment increase.

State and federal regulators shuttered All American Bank in Des Plaines, Illinois, over the weekend, bringing this year's failed-bank tally to 85. The FDIC brokered a deal with International Bank of Chicago to take over the failed lender's operations and purchase all of its assets. All American Bank is the ninth FDIC-insured institution in the state to go under this year.