By Diana Golobay
Signs of recovery in the US economy and housing market are stronger
than expected, due to policy response from the federal government,
according to the International Monetary Fund (IMF).
While IMF expects US gross domestic product (GDP) growth of 3.25% in
2010 and 3% in 2011, unemployment is projected to remain above 9%.
IMF warned in a statement that "the backlog of
foreclosures and high levels of negative equity, combined with elevated
unemployment, pose risks of a double dip in housing."
As unemployment declines across the country, resources could be
diverted from unemployment aid to targeted measures like credits for
hiring, which IMF said could encourage job creation.
The US Department of Labor noted 454,000 initial
unemployment insurance claims in the week ending July 3, based on seasonally adjusted data. It marks a 21,000-claim
decrease from the previous week but remains historically high. The
unemployment rate dropped slightly to 9.5% in June, as the labor
force shed 652,000 unemployed workers who — as HousingWire reported — could have stopped looking for work or
possibly returned to school.
"In addition, further support for foreclosure mitigation under the
existing framework may be needed if the housing market were to weaken,"
IMF wrote, adding that a worst-case scenario may include reconsideration
of mortgage cram-downs within bankruptcy.
The IMF noted that recent reform legislation emphasizes a return to
"safe securitization" of assets like mortgages through greater oversight
and accountability for ratings agencies, more transparency of the
assets, greater emphasis on investor due diligence and "skin in the
game" for originators.
"Given the large role that securitization played in the past, and the
potential limits to bank balance sheets for creating credit, speedy
implementation of these measures would be essential to avoid limits on
credit supply that could crimp the recovery," IMF said. "It will also be
important to coordinate reforms domestically and internationally to
ensure safe securitization and promote a level playing field."
In the meantime, the housing finance system remains "costly,
inefficient and complex," according to the note.
Additionally, the IMF recommended a clarification of
government-sponsored enterprise (GSE) mandates and a privatization of
their retained portfolios. Fannie Mae and Freddie
Mac's core bundling and guarantee business lines "should be
made explicitly public," the IMF said.