Federal Reserve Officials Push For More U.S. Housing Market Stimulus

Fed Officials Push For More Aggressively Helping Housing Market

* Dudley: need to help "frustratingly slow" recovery

* New policies needed for Fannie and Freddie, Duke says

* Dudley advocates principal forgiveness

* Rosengren sees room to buy more mortgage-backed securities

By Jonathan Spicer

ISELIN, N.J., Jan 6 (Reuters) - Three top Federal Reserve officials aggressively pushed on Friday for more stimulus for the U.S. housing market, saying the government should be looking at ways to help the sector in order to speed the economic recovery.

In separate speeches, the Fed officials -- William Dudley, the president of the New York Federal Reserve Bank; Fed Governor Elizabeth Duke; and Eric Rosengren, president of the Boston Fed -- warned that the fragile housing sector was impeding a stronger U.S. recovery.

Their remarks came even as a robust jobs report provided fresh evidence that the recovery was gaining.

The push for action came two days after the Fed entered the thorny debate over how to use the two main government-run mortgage finance firms, Fannie Mae and Freddie Mac , to turn around the housing market.

The housing sector was at the heart of the financial crisis and recession and has continued to hamper the recovery.

A 33 percent decline in U.S. housing prices since 2006 has resulted in an estimated $7 trillion loss of household wealth, and about 12 million U.S. homeowners are currently underwater on their mortgages.

Policymakers need to consider more action to kick-start housing and to help the country's "frustratingly slow" economic recovery and "unacceptably high" unemployment, Dudley said in a speech in New Jersey.

Monetary policy should work to complement actions by other U.S. policymakers, which together could help to stabilize home prices and turn around the housing market within a year or two under good conditions, he said.

Dudley outlined potential actions - from providing financial support to homeowners who lose their jobs to minimizing the liability lenders face on mortgages guaranteed by Fannie and Freddie, which he said could free-up overly tight credit.

He also advocated having the two government-sponsored enterprises reduce principal on delinquent mortgages and on loans to borrowers who owe more than their homes are worth -- a step their regulator has rejected out of concern it could drive up the cost of taxpayer support.

Duke, speaking in Richmond, Virginia, said new policies that rely on the two firms that have already soaked up about $169 billion in taxpayer aid were necessary.

"Policymakers should at least consider policies that take into account the role the GSEs could play in hastening the healing of the housing market rather than focusing entirely on minimizing losses to the GSEs," she said.

Rosengren, the Boston Fed chief, said one way to shore up housing would be for the central bank to buy more mortgage-backed securities .

"Given the low inflation rate and weak labor markets that are both likely to persist this year, I believe the Federal Reserve should continue to explore ways to promote more rapid recovery through stronger growth," Rosengren told a business group in Hartford, Connecticut.

Dudley, Rosengren and, to some degree, Duke are considered part of the Fed's "dovish" wing -- more concerned with strengthening the economy than trying to contain inflation. Their speeches could set the tone for the central bank's more activist members this year.

Dudley, as head of the New York Fed, and Duke hold permanent votes on the central bank's policy-setting committee; Rosengren will rotate into a voting seat in 2013.

The Labor Department on Friday reported the biggest gain in nonfarm payrolls in three months and said the jobless rate dropped to a near three-year low of 8.5 percent.

Rosengren said that while the job growth is better than had been seen recently, it is still not enough to return the country to full employment.

Duke on Friday said the Fed's current stance of monetary policy is appropriate, with considerable risks both up and down to her forecast of moderate growth.

Prices for U.S. government debt rose Friday as the Fed officials' calls for further stimulus overshadowed the good news on the economy, while stock prices slipped. The dollar rose against the euro.

WHAT TO DO WITH FANNIE, FREDDIE

The Fed has bought $2.3 trillion in Treasury and housing-related debt as part of its so-called quantitative easing over the last three years. In response to the worst recession in decades, it has also slashed overnight interest rates to near zero.

The purchase of mortgage securities, however, was a controversial part of its first round of easing in 2009, known as QE1, drawing criticism from some officials for propping up a specific sector of the economy.

The use of "unconventional policy tools has been completely appropriate" to help the Fed achieve its mandate of maximum employment and price stability, Fed Governor Sarah Bloom Raskin, also a voter, said in a speech in Maryland.

Dudley, who in the past suggested the Fed could potentially do more to drive down mortgage rates, said: "Monetary policy and housing policy are much more complements than substitutes."

On Wednesday, in a staff paper Fed Chairman Ben Bernanke sent to Congress, the Fed argued that Fannie Mae and Freddie Mac could boost the recovery if they were allowed to provide cheaper mortgages to a broader pool of homeowners.

Dudley on Friday called the paper "a thoughtful analysis of housing policy."

The two firms, the biggest sources of U.S. mortgage funding, were seized by the government in 2008. Their extensive taxpayer support has made them a target of many lawmakers on Capitol Hill.

The Fed holds its next policy-setting meeting on Jan. 24-25, when a new slate of four regional Fed bank presidents will rotate into voting seats. Any further action could hinge tightly to prospects for the stubbornly high U.S. unemployment.

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