Fed's proposals to fix housing fall short

Major obstacles lie in income documentation, mortgage insurance rules

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In an important break from prior practice, Federal Reserve Chairman Ben Bernanke early in January delivered a staff document to both houses of Congress that called for important changes in housing policy. The major theme was that "continued weakness in the housing market poses a significant barrier to a more vigorous economic recovery," and "there is scope for policymakers to take action …"

Backdrop: the reduced effectiveness of monetary policy

Before the financial crisis, the housing sector was a major part of the mechanism through which monetary policy impacted the economy. Monetary easing during recessions stimulated refinancing, homebuying and new home construction as a counterforce to weaknesses elsewhere in the economy. But not this time.