The Federal Reserve is considering a plan that would make mortgage rates on most loans more predictable, according to a former Fed economist who said it was an important step to help slow the runaway housing bubble.
The former Fed chief economist, who was also the chairman of the central bank from 2007 to 2015, said in a speech at the University of California-San Diego’s business school on Monday that the Fed was considering an “economic stimulus package” to help the housing market recover.
The Fed would also try to get people to buy more houses, he said.
The proposal comes after Fed Chairwoman Janet Yellen said last week that the housing sector may have to “do some soul searching” about its economic recovery, but that it should “never get sucked into an unsustainable bubble.”
The Fed’s decision is likely to be challenged by investors and lawmakers in Congress, which have demanded that the central banks centralize its monetary policy and limit the amount of money it can buy.
Fed Chair Janet Yields plan to boost mortgage rates is an important move, but is it right?
The Fed has been pushing to boost rates and raise them in recent months.
But in recent weeks, Fed officials have been sounding a different tune, arguing that their plans were not aimed at raising the overall cost of mortgages.
Fed officials said in February that the policies would not increase the cost of housing and that the rate hikes would be “large enough to achieve a sustained recovery in mortgage rates.”
But in an interview on CNBC in late March, Yellen acknowledged that the plans were intended to help housing recovery.
“I don’t think we are suggesting that rates should go up,” Yellen told CNBC.
“It’s just a very targeted policy to help to stimulate the housing recovery.”
Yellen did not mention that the increase would be in the form of mortgage rate increases, saying instead that it would be more targeted to help households that have been “bought back” from foreclosure by banks.
The Federal Deposit Insurance Corp. said on Monday it was “not convinced” that the plan would help the recovery and said it “does not support the notion that the proposed rate increases will have an impact on housing affordability.”
Yieldings plan could be controversial Fed officials say the Fed’s plans are designed to help borrowers with their current mortgage payments and are not designed to increase their mortgage debt.
The plan would be phased in over the next three years and would be similar to the Fed plans that the Federal Reserve uses to help families buy homes.
The first round of the plan is designed to boost the amount that a borrower can borrow each month from about 3.75 percent to about 5.25 percent, according a statement from the Fed.
The second round would increase that to 5.75 to 6.25.
But Yieldses plan would include an increase to 6 percent in a couple of months after that.
“We would like to help lower-income households,” Yieldsss said.
“That’s why we’re putting in a modest rate increase and then some in the fourth quarter.”
But the Fed is also expected to announce plans later this year to help more families who are facing foreclosure by allowing them to refinance their mortgages at higher interest rates.
The plans are likely to face opposition in Congress.
In recent weeks lawmakers have criticized the Fed for not doing enough to help homeowners who have been bought back from foreclosure and for not keeping its rates low enough to allow homeowners to afford their mortgages.