By Brai Odion-Esene
WASHINGTON (MNI) – Minneapolis Federal Reserve Bank President
Narayana Kocherlakota said Tuesday that the Federal Reserve is committed
keeping inflation under control as part of its continuing role in
promoting affordable and accessible housing finance.
Kocherlakota also spoke out in favor of a reduction in the amount
of debt homebuyers take on to buy a house, arguing that individuals
should be encouraged to save and become equity holders in their homes.
In brief welcoming remarks at a workshop sponsored by the
Minneapolis Fed and the Minnesota Homeownership Center’s Emerging
Markets Homeownership Initiative, Kocherlakota — a voter on the Federal
Open Market Committee this year — did not make any comments on the
present state of the U.S. economy or monetary policy.
Some regional Federal Reserve Bank presidents have in recent
speeches ratcheted up their concerns about inflation, and Kocherlakota
made it clear that, “In our most prominent role as makers of U.S.
monetary policy, the Fed is committed to keeping inflation under
control, which helps make traditional mortgages more affordable.
“Certainly, the Fed has played, and will continue to play, multiple
roles in promoting sound, affordable, and accessible housing finance,”
he added.
Commenting on the ongoing attempts to craft housing finance reform
following the housing bust in 2007, Kocherlakota warned that any new
system must not include a significant role for the government.
“This heavy reliance on government guarantees is not a sound
long-term strategy,” he said. “Over time, our country needs a mortgage
market that returns to greater reliance on private risk-taking and
private risk assessment, along with the enhanced regulatory oversight
that is already in place.”
This is also an opportunity to “rethink” many aspects of U.S.
public policy programs in the context of housing finance, Kocherlakota
said.
He said programs such as the tax deduction on mortgage interest
encourages homebuyers to take on debt — sometimes in large amounts.
“If we truly want to encourage home ownership, we should
contemplate programs that provide incentives for individuals to save and
become equity holders in their homes — and, by extension, in their
communities,” Kocherlakota said.
In addition to its role of ensuring mortgage rates are affordable,
he said the Fed has a “key role” in overseeing many of the financial
reforms in the Dodd-Frank Act that are aimed at preventing the excessive
risk-taking that helped fuel skyrocketing home prices, imprudent
lending, and ultimately, the housing market collapse.
“Our safety and soundness and macro-prudential supervisors will be
leaders in applying new regulatory approaches for banks and others,”
Kocherlakota said.
** Market News International Washington Bureau: 202-371-2121 **
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