Even the IMF Wants GSEs to do PR

July 3rd, 2012 at 5:20 pm

OK, too many acronyms in that title.  But when the International Monetary Fund, in its new US economic assessment, points out that “[a]ggressive implementation of the measures proposed by the Administration to speed up the housing recovery could yield sizable benefits to the broader economy,” perhaps policy makers should pay attention.  I mean, these folks aren’t exactly radicals.

To their credit, the IMF notes the importance of principal reduction measures, a consistant theme here at OTE.  Moreover, they recognize the need for “…the participation of the Government-Sponsored Enterprises in the principal reduction program.”

So, what’s happening here?  Someone needs to speak up.

To the FHFA (the GSEs regulator): enough with the foot-dragging!  If you want to see other people don’t intend to take the White House up on their pumped-up incentives under HAMP to write down principal, than say so and stop dangling the possibility.

To the White House: Is there really nothing you can do to get the FHFA to try this?  Recess appointment?!?  Anything…Anyone…Bueller?!?

A couple of other notable points from this really quite thoughtful summary by the IMF:

–They predict our growth slog to continue for awhile, with real GDP growing 2% this year and 2.3% next, and with the jobless rate hovering around 8%.

–They are appropriately worried about the fiscal cliff and its impact on a wobbly economy, and call for a quick deal.  But before any policy makers try to use that as an excuse to kick everything down the road for another year, be aware that they’re also very solid on the need for that deal to include new revenues.

–Considering this is the IMF, they’re pretty non-austere in this assessment, suggesting that any fiscal contraction needs to be gradual and weighed against the continued need for government and Fed Reserve support to offset ongoing weak demand conditions.

–There’s even a plug for implementing the Volcker rule (with the correct warning that “[i]n drafting the final rule, regulators need to be mindful that its effectiveness could be hindered by exemptions…”)!

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2 comments in reply to "Even the IMF Wants GSEs to do PR"

  1. Richard Careaga says:

    The FHFA should be more candid:

    We could cut to the chase and take the probable losses now. It would be hard to implement operationally given the sorry state of the systems we have. The only other option to letting nature take its course is called “forbearance,” which allows us to pretend that somehow things will spontaneously get better. If there are other options we don’t know about them or we’re not telling. Some of the losses may be due to capitalized past-due interest (arrearages) and the attendant servicing fees, but we’re not telling that either. We have this model. Blame someone else for the net present value part of it. There are a lot of assumptions. We list some of them. We want you to believe that the model is precise enough so that we can judge differences to the dollar. As far as we’re telling you, assume that there is no estimation error associated with our model, at all. Putting the losses on the servicer (hint, hint) saves our bacon. This is ugly, and we don’t want to be blamed for any of the possible bad outcomes–you make the tough decisions and we’ll do our best to implement it, but we don’t know how to do it and resources are scarce.


  2. Nhon Tran says:

    Thank you.
    While I accept the overall integrity of the report, I must say that the drafting of it must have been subject to argy-bargy/give-and-take between the IMF and the US Treasury – as any country assessment being subject to drafting negotiations between the IMF and the host country. So at the margin, there could be nuances lost, it’s difficult to know. Regards.


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