Cordray, 53, took the helm of the consumer agency in late 2011 through a recess appointment. His term expires at the end of the year unless he wins approval. But Senate staffers say Obama’s end run has poisoned the waters for Cordray.

President Barack Obama on Thursday nominated Mary Jo White to lead the Securities and Exchange Commission and also named Richard Cordray to stay on as head of the Consumer Financial Protection Bureau.

“Until key structural changes are made to the bureau to ensure accountability and transparency, I will continue my opposition to any nominee for director,” said Sen. Mike Crapo (R-Idaho), ranking member of the Senate Banking Committee. “If the president is looking for a different outcome, the administration should use this as an opportunity to work with us on the critical reforms we have identified.”

There are at least three bills and one ongoing court case aimed at turning the bureau into a five-member commission, subject to the congressional appropriations process.

Consumer advocates, however, say Cordray has taken a measured approach to regulation, as illustrated by recent rules about mortgage lending, and demonstrated a willingness to work with all interests. They might not always agree with his positions, but they support his effort to continue the work. Some question whether the GOP structural argument is an attempt to destroy the agency.

“Republicans just talk about turning the CFPB into a commission, but they’re not going to limit their fight to that,” said Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group. “They want to take away its funding, eliminate some of its authority.”

Whether the consumer bureau should be led by a director or a commission is a valid debate, he said, but not one that should hold the appointment hostage. Mierzwinski noted that it’s not unprecedented for an agency to have a single director: the Office of the Comptroller of the Currency, which regulates the nation’s largest banks, is led by one person.

Those who support having a commission-led agency say that it is the best way to protect consumer interests in the long run, because the strength of enforcement could waver depending on who is at the helm.

“If the Republicans ever get the Senate back, it will be the consumer activists calling for a commission,” Richard Hunt, president and chief executive of the Consumer Bankers Association, said during a call with reporters. Like many opponents of the bureau’s structure, Hunt said he has no qualms with Cordray. The director, he said, has proved to be tough but fair, yet there is no guarantee that the next director will be as capable. That is why he thinks there needs to be a board comprised of Democrats and Republicans with staggered terms, much like the Securities and Exchange Commission.

Analysts say Cordray’s best chance of winning confirmation might involve a deal that turns the bureau into a commission with Cordray as chairman.

Jaret Seiberg, senior policy analyst at Guggenheim Partners, thinks “the Obama administration is amenable to this type of deal as long as CFPB continues to be funded outside the congressional appropriations process.”

The White House has not indicated whether the president would consider restructuring the CFPB. Obama has always said the bureau should be independent, with one director. If Republican senators again block Cordray’s nomination, the president could use the recess appointment. But Obama refused to address that issue during a news conference announcing the nomination on Thursday.

Instead, the president focused on the accomplishments of the bureau and the work that still needs to be done.

“Financial institutions have plenty of lobbyists looking out for their interests,” Obama said. “The American people need Richard to keep standing up for them. And there’s absolutely no excuse for the Senate to wait any longer to confirm him.”

Cordray will have to face the Senate Banking Committee, which will probably vote along party lines, as he seeks confirmation. Although the Democrats have 55 seats in the Senate, a single Republican could filibuster a final vote. If that happened, five Republicans would have to break ranks to end the filibuster and push through the nomination.

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A bill passed by Congress on Tuesday to pull the nation back from the brink of end-of-year tax hikes and spending cuts contains several provisions that are favorable to housing.

Chief among them is one that provides an additional year of relief for troubled homeowners selling their properties. Without action by Congress, those homeowners would have faced big tax bills if they completed “short sales”—those in which the lender agrees to allow the borrower to sell the home for less than the outstanding mortgage amount.

In the past, forgiven debt has typically been considered taxable income. But in 2007, Congress exempted homeowners from treating some forgiven mortgage debt that way as part of an effort to encourage alternatives to foreclosure.

“An extension of the tax break is positive for home values by reducing the number of foreclosures and helping more troubled borrowers stay in their homes,” wrote Jaret Seiberg, an analyst with Guggenheim Securities. “That means less supply on the market.”

Another move that should benefit some homeowners is the restoration of a tax deduction for mortgage-insurance premiums, including premiums paid to the Federal Housing Administration and private mortgage insurers alike. That deduction had been absent for a year after expiring at the end of 2011. In 2009, 3.6 million taxpayers claimed this deduction, according to the National Association of Home Builders.

“This is a meaningful win for the housing lobby generally and, more specifically, the mortgage insurance industry,” wrote Issac Boltansky, a Washington analyst with Compass Point Research and Trading.

The housing industry also dodged a bullet on a big issue—potential limits on itemized deductions, including the cherished mortgage-interest tax break. Last year, there was talk among politicians in both parties of capping those deductions at a particular level, and Republican presidential candidate Mitt Romney suggested several options, ranging from $17,000 to $50,000. But those limits did not come to pass as part of the fiscal cliff deal.

The pact does restore some limits on deductions that had been in place in the 1990s. But they apply only for individuals earning above $250,000 per year and couples earning above $300,000.

These limits reduce how much high-income taxpayers can claim for mortgage interest and other deductions. For example, a couple with a combined income of $350,000 would see their total itemized deductions fall by $1,500. That results from a formula that reduces the amount that can be deducted by 3% of the difference between the taxpayer’s income and the deduction cap. (In this case, $1,500 is 3% of the $50,000 difference between $300,000 and $350,000.)

However, analysts still believe the mortgage-interest deduction could be altered as Congress continues to look for ways to save money. “While the mortgage interest deduction avoided a direct hit this time around, we doubt it will…dodge Congressional scrutiny going forward,” Mr. Boltansky wrote.

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While the idea is still in the brainstorming stage, it’s part of a broader initiative that the CFPB launched in 2011 to streamline and outline specific mortgage disclosures that the lending industry is required under Dodd-Frank reforms to deliver to borrowers.

The proposed plan would allow banks on a select case-by-case basis to obtain safe harbors from the CFPB’s initial disclosure rules as they go through a trial period to figure out how to best deploy the revamped mortgage disclosures.

With the CFPB expected to role out a slew of new rules in January, the concept of allowing banks to test drive disclosures before they’re forced to fully comply is attractive to the market.

“At first blush, the trial disclosure proposal that the CFPB announced today looks like an interesting idea, and a pretty unique approach,” said Rick Sharga, with Carrington Mortgage Holdings. “Reaching out to practitioners to create in-market trial programs that benefit consumers and work better for financial institutions is a win/win.”

He added, “By allowing lenders to make recommendations on better ways to clearly communicate disclosures to borrowers, and giving them safe harbor during the test period, the CFPB can tap into the expertise of professionals who work with consumers on a daily basis, and have real-world experience in what sorts of processes and procedures should work best for everyone involved in the transaction.”

The initiative, which is known as Project Catalyst, would encourage banks, credit unions and other financial firms to propose trial runs to the CFPB for the purpose of studying how best to deliver the new disclosures.

In 2011, the CFPB began the long process of hashing out proposed forms for the combining of the Truth-in-Lending Act and RESPA mortgage disclosure forms. Sharga says he likes the test pilot concept, but needs more information.

“There are some details that need to be spelled out – what sorts of disclosures will be included — TILA? RESPA? Others? — what will constitute a “successful” test,” he said. “But the CFPB should be applauded for taking an approach that solicits industry input, and works toward a common goal of enabling borrowers to make more informed decisions.”

The CFPB said the option to test drive disclosures would apply to disclosure requirements that fall under the CFPB’s direct authority.

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A spokesperson at the bureau said Cordray, often talked about as a potential Democratic gubernatorial nominee in Ohio, has no plans to leave his job and the White House isn’t commenting. But his chances of getting confirmed are pretty much nil — and he can’t be re-recessed.

The governorship will be up for grabs in 2014, leading to speculation that Cordray will make a move. He lost earlier bids for the Senate and House.

Loop Fans may recall that Senate Republicans blocked his nomination in 2011, insisting that the administration first agree to have a five-member commission oversee the new consumer watchdog.

The stand-off left the bureau leaderless, unable to write any rules, so President Obama gave Cordray a recess appointment, an end-run that outraged Senate Republicans.

Even so, Cordray and his team forged ahead with rules to govern the financial services industry and enforcement actions to keep companies in line..

Just as the bureau is settling into the role of regulator, it is facing a potential leadership vacuum. Not only is Cordray’s term up in the coming year, but his deputy director Raj Date is stepping down on Jan.y 31.

Date, who helped build the agency from the ground up, would have been acting director in the Cordray left at the end of the year. But now it’s uncertain who would step into the role if Cordray departs.

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But the housing market remains far from normal. Hitting a bottom shouldn’t be confused with a full-on recovery, which looks a ways off.

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Today’s rising prices have less to do with surging demand—though hard-hit markets in Arizona, California, and Florida have seen significant investor appetite for distressed homes—than with declines in the number of properties for sale.

Inventories of “existing” homes—that is, ones that haven’t just been built—are at eight-year lows. New-home inventories are lower than at any time since the U.S. census began tracking them in 1963. In some cities, there are one-third fewer homes listed for sale than a year ago.

Here’s why prices are rising: There are more buyers chasing fewer homes, and—critically—fewer distressed homes, such as foreclosures. Low inventory is one sign that housing markets may have reached a turning point because many want to buy at the bottom but few want to sell.

There are several factors behind the low inventory. Banks have slowed their pace of foreclosures. Investors have snapped up discounted properties that they can convert into rentals. Home builders, struggling for several years to compete on price with foreclosed properties, have added little in the way of new supply.

For now, price gains are concentrated at the low end of the market, where inventory declines have been most dramatic. “The market is really drying up in these seemingly distressed markets really quickly,” said Michael Sklarz, president of research firm Collateral Analytics. “They really are scratching for properties to sell.”

Low inventory is benefiting home builders, as buyers grow frustrated by bidding wars sparked by a shortage of move-in-ready housing. “People can’t find inventory that they want, so they say, ‘I’m just going to buy the house down the block that’s brand new. I don’t have to go through the whole torture,’ ” Mr. Sklarz said.

Housing’s progress is good news for the economy. Residential investment has now contributed to U.S. economic output for the past five quarters, which hasn’t happened since 2005. In other words, housing is no longer a drag, though it is packing far less of a punch than it normally does at this point in the economic cycle. Rising prices also could help turn around consumers’ fragile psychology, an unpredictable but important factor that can fuel more sales.

But low inventory isn’t necessarily a sign of strength. One problem is that many sellers can’t or won’t become buyers. Millions still owe more than their homes are worth, and even more—about 45% of all homeowners with a mortgage, according to data firm CoreLogic Inc.—have less than 20% in equity. That means they don’t have enough money to make a large down payment and pay their real-estate agent’s commission to buy a comparable house.

Large price declines have left cities without what historically has been the most active segment of the home-buying market: families looking to trade up and retirees seeking to downsize. That leaves many markets relying on investors and first-time buyers, who are most sensitive to rising prices and mortgage rates. Ironically, prices are rising fastest in markets that have the most underwater borrowers because so few homes are for sale.

While low inventories have helped firm up prices, they could also soon lead to year-over-year declines in sales volumes because there aren’t enough homes on the market to sustain the current sales pace.

Consider Phoenix. Home prices through June were up by 17% over the past year, the best increase among the nation’s big cities. But home sales in July fell 8% from a year ago, amid a drop in supply of more than 25%, according to a report from Mike Orr of Arizona State University.

Jon Mirmelli, a local real-estate investor, said, “Buyers aren’t happy with what they see, and they’re staying on the sidelines.”

There are other reasons for caution. Banks are still stingy with credit. Many would-be buyers have too much debt to qualify for a mortgage.

A large overhang of distressed mortgages ultimately could drive more homeowners to sell or push banks to accelerate foreclosures. This “shadow inventory” looks as if it won’t be dumped on the market in a way that would trigger deep price declines, but it would probably keep a lid on any swift gains.

Jobs and wages also aren’t growing fast enough to sustain big rises in home prices. Recent gains may be less indicative of a strong recovery and instead point to how prices in some markets “overcorrected,” bringing in investors who will step back as prices firm up.

Others worry that mortgage rates, which are down by a full percentage point from one year ago, are temporarily boosting sales and that housing demand will slump once rates rise. Compared with a year ago, mortgage rates allow borrowers to take out about 12% more in debt without increasing their monthly payment.

The changing debate over housing underscores the sector’s tentative progress. Earlier this year, the question was whether housing would hit bottom this year or next. Now, it is “about how strong any recovery will be, how long it will last, and whether it will reach every neighborhood in America,” said Glenn Kelman, chief executive of Redfin, a real-estate brokerage.

An important test comes later this year. In each of the past three years, prices rose in the summer but gave up all those gains and more in the winter, when sales traditionally slow. This year could be different because the supply of homes isn’t piling up.

Absent a shock to the economy, housing is on the mend. But it will be a long time before it returns to normal

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The percentage of homeowners delinquent on their mortgages in the first quarter fell to the lowest level since the end of 2008, but the share of loans in the foreclosure process remains high. Dawn Wotapka has details on Lunch Break. Photo: AP.
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Housing Less Dilapidated, But Still a Fixer-Upper
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At the end of March, 11.8% of all loans were at least 30 days past due or in foreclosure, the report from the Mortgage Bankers Association said. While that is still high by historical standards, it has improved steadily over the past two years, falling from 12.8% a year ago and 14.7% two years ago.

The decline in the share of homeowners late on payments was due almost entirely to fewer new cases of delinquency, a sign that households’ finances are improving. The percentage of borrowers behind on their mortgage but not in foreclosure fell to 7.4% at the end of March from 8.3% a year earlier.

“The drops we continue to see there are the best news out of this. It indicates the speed with which we’re working through the backlog” of bad loans, said Jay Brinkmann, chief economist of the Mortgage Bankers Association. The survey covers about 88% of all U.S. mortgages, or about 43 million loans.

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Separately, the Commerce Department said construction starts on new housing jumped 2.6% in April to a higher-than-expected annual rate of 717,000, suggesting that home-building—a sector with the potential to boost the wider economy—continues to improve. New permits to build homes fell 7%, though the drop was from a 3½-year high in March.

Foreclosures, however, remain a concern. Although banks initiated fewer foreclosures in the first quarter than at any time since 2007, the share of loans in the process remains high.

Some 4.4% of mortgages were in some stage of foreclosure at the end of March, unchanged from the previous quarter and down only slightly from 4.5% a year ago.

The numbers mask big variations by state. The national foreclosure rate remains elevated largely because of states that require banks to process foreclosures through the courts. In these so-called judicial states, banks have moved to take back homes very slowly since judges uncovered record-keeping abuses in foreclosure processing 18 months ago. Banks have encountered fewer hurdles in nonjudicial states.

Mortgages in Trouble
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The foreclosure rate in judicial states stands near 6.9% and has been flat or rising over the past year. Nonjudicial states have a much lower rate—about 2.8%—as they have been able to work through foreclosures quicker.

Of the 11 states with foreclosure rates above the national average, 10 of them have judicial processes. The top three are all judicial states: Florida had a foreclosure rate of 14.3% at the end of March, followed by New Jersey (8.4%) and Illinois (7.5%).

Several nonjudicial states that had severe housing problems, such as California and Arizona, have seen foreclosure rates drop below the national average. While there are signs that home prices are beginning to rise in more markets, including hard-hit Phoenix and Miami, those communities with a large “shadow” inventory of potential foreclosures could face renewed price pressure once banks take back and list for sale more of those properties.

In those states, investors have grown more confident that more foreclosures won’t be dumped on the market, said Mr. Brinkmann. There, “the market is stabilizing and people are coming back. I don’t think that’s true in Illinois right now.”

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By ALEX VEIGA, AP Real Estate Writers – 23 hours ago

WASHINGTON (AP) — Five years after the U.S. housing bust sent sales and prices plunging, the spring home-buying season is pointing to a long-awaited recovery.

Reduced prices, record-low mortgage rates, higher rents and an improving job market appear to be emboldening many would-be buyers. Open houses are drawing crowds. A wave of foreclosures is leading investors to grab bargain-priced homes.

And many people seem to have concluded that prices won’t drop much further. In some areas, prices have begun to tick up.

Interviews with more than two dozen potential buyers, sellers, brokers, Realtors and economists suggest that confidence is up and that sales will move slowly but steadily higher.

“The biggest challenge that we’ve had over the past four years is fear — fear that the economy is collapsing, that property values are collapsing, that the world is coming to an end,” says Mark Prather, a broker at ERA Buy America Real Estate in La Palma, Calif. “The fear factor is all but gone.”

Prather says the number of prospective buyers who contacted his company last month was about 35 percent more than a year ago.

The spring buying season got an early lift-off from an uncommonly warm January and February — a winter that was the best for sales of previously occupied homes in five years. Permits to build houses and apartments rose in February to their highest level since 2008.

“People feel much more confident,” said Steve Brown, co-owner of real estate company Irongate Inc. of Dayton, Ohio, who says sales jumped more than 16 percent for the first two months of 2012 over the same period last year. “There’s no question there’s a good feeling in the marketplace.”

Some analysts detected a slight uptick in prices for February and March. CoreLogic, a real estate data firm, says prices for homes not at risk of foreclosure — about two thirds of the market — rose 0.7 percent in February. It was the first increase in four years. Price gains occurred both in some hard-hit areas, such as Phoenix, and some still-thriving areas like New York and Washington.

In Miami, the average sales price has surged 14 percent in the past year, according to Trulia, a real estate data firm. In Phoenix, the average is up 13 percent, in Pittsburgh 9 percent.

Earnings reports Friday from two big banks suggested that more people are taking out mortgages. JPMorgan Chase issued 6 percent more mortgages from January through March than it did a year ago and got 33 percent more applications. Wells Fargo issued 54 percent more mortgages and received 84 percent more applications.

Still, few think the housing industry is nearing a return to full health. For that to happen, a robust job market would be needed. More hiring would give more people the money and job security to buy. That would help boost sales and prices.

Such areas as Atlanta, suburban Las Vegas and central California show few signs of recovery. And in some others — from Seattle to Cleveland — home prices have continued to slip. The average has dropped 9 percent in Seattle over the past 12 months and 7 percent in Cleveland.

But in many parts of the country, including thriving areas of Boston, Dallas and Seattle, confidence is rising along with prices. Among the reasons:

— Hiring has strengthened. Each month from January through March generated a solid average of 212,000 jobs. Unemployment has sunk from 9.1 percent in August to 8.2 percent. More job security tends to embolden more people to invest in a home. In Dayton, for example, the University of Dayton is hiring for a new engineering research center, General Electric is hiring hundreds of contractors and the nearby Wright-Patterson Air Force Base are expanding.

— Loans remain cheap. The average rate on a 30-year fixed-rate mortgage is 3.88 percent. That’s just above the 3.87 percent reached in February — the lowest since long-term mortgages were first offered in the 1950s.

— Homes are more affordable. Nationwide, home prices are down 34 percent since 2006.

— Americans are more confident. The Thomson Reuters/University of Michigan’s survey of consumer confidence rose in March for a seventh straight month to its highest level in 13 months.

Also fueling interest are signs that home values are finally stabilizing. One factor that had slowed purchases after the housing boom ended in late 2006 was fear that a home would lose value soon after its purchase.

But the price declines slowed toward the end of 2011, according to the Wells Fargo/Case-Shiller home price index. And CoreLogic says the average price nationally rose slightly in January and February.

“Unless prices went down, I don’t think we would have ever been able to afford a home,” said John Henschel, 37, an information technology consultant who will move with his family into a five-bedroom house in Wheaton, Ill., in May. “But we feel like prices aren’t going to go back down. We’re confident. So why not?”

When the landlord on their Chicago apartment told them he was selling it, Henschel and his wife decided it was time to buy. The home they bought for nearly $450,000 could have fetched more than $570,000 six years ago, according to housing website Zillow.com.

On a rainy Saturday this month in long-struggling Riverside, Calif., 12 families visited a three-bedroom house priced at $199,999. Ten others stopped by in the first hour of the next day’s open house. By the end of the weekend, two buyers had made offers.

“We’re seeing more buyer activity this spring than we’ve seen in probably four years,” said Liane Thomas, the broker who was showing the house.

Prices in the area could rise in coming months because the supply of homes for sale in Riverside is down — from nearly 19,000 last year to 13,000 in February.

Many potential buyers are hunting for deals in places that were especially hurt by the housing bust. In Sarasota, Fla., which boasts wide sugar-sand beaches, condos are selling for an average of $325,000, compared with more than $550,000 at the height of the boom, said Marc Rasmussen, a broker.

Homes nearing foreclosure account for nearly half of all properties on the market, according to the Campbell/Inside Mortgage Finance HousingPulse survey. That compares with 10 percent in healthy economies. Many are receiving multiple offers because their prices have plunged.

In Phoenix, a foreclosed home offered for $77,000 that had been vandalized received 21 offers last month at or near the asking price — roughly the price it sold for. The average time a home sits on the market in Phoenix has dropped from 114 days last year to 90 days, according to the Cromford Report, a data research group.

In suburban Washington, D.C., Rory Obletz and his wife have been saving to buy after renting for six years. Obletz, 27, failed in two previous bids for single-family homes. He’s hoping a third bid — about $10,000 above the asking price of $399,000 for a home in Silver Spring, Md. — will succeed this month.

“One home we went to, it was under contract by the time we walked out of the house,” Obletz said. “If you really want to get something, you don’t have a lot of time to think about it.”

It isn’t just bargain-hunting families seeking homes. Investors are increasingly buying single-family houses, fixing them up and re-selling them or converting them into rentals.

Investors are out-bidding many first-time buyers on cheaper homes in particular. Sales of homes between $100,000 and $250,000 have jumped nearly 19 percent over the past year. For homes between $250,000 and $500,000, sales are up 13 percent.

More expensive homes, from $500,000 to $750,000, whose sales tend to contribute the most to the U.S. economy, are up a smaller 6.7 percent.

For buyers seeking to move up to a bigger home or to relocate, the toughest challenge is often selling the home they’re in. According to CoreLogic, about 11 million homeowners are “underwater” — they owe more on their mortgage than their home is worth.

Yet for first-timers like Obletz, who have been saving and watching as homes have become more affordable, the time feels right.

“Rent is a little more expensive, and we have the money, so we might as well jump on it,” he says.

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Veiga reported from Los Angeles. Associated Press Writer Tamara Lush in Sarasota, Fla., contributed to this report.

Copyright © 2012 The Associated Press. All rights reserved.

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March 26, 2012, 10:50 p.m.
ARLINGTON, Va.— — Federal Reserve Chairman Ben S. Bernanke, worried that recent labor market improvements could fizzle because of weak economic growth, signaled that he was poised to keep interest rates at their super-low levels and stick with the central bank’s easy-money policy for some time.

Though the labor market and the economy have improved in recent months, he stressed in a speech Monday that labor-market conditions were “far from normal,” noting that the number of people working is well below pre-recession levels, as is the total number of hours worked.

And he expressed concern about the unusually high number of long-term unemployed, whose skills and ability to get jobs tend to decline over time.

Some financial analysts had been speculating that the central bank might be pondering an increase in interest rates because of a strengthening of the economy. But Bernanke’s comments indicated that he plans to stick with the Fed’s low-interest-rate, easy-money policy for the foreseeable future.

Bernanke noted that the substantial drop in the jobless rate — to 8.3% in the first two months of this year from 9.1% last August — was “somewhat out of sync” with the slow pace of economic activity.

“What we may be seeing now is the flip side of the fear-driven layoffs that occurred during the worst part of the recession,” the Fed chairman said at a gathering of the National Assn. for Business Economics. He said that companies appear to “have become sufficiently confident” to hire more workers to meet expected demand.

But for the jobless rate to drop much further, he said, the nation would need “a more rapid expansion of production and demand from consumers and businesses.” That, he said, argues for “continued accommodative policies” to support growth.

Wall Street cheered Bernanke’s comments, with major indexes locking in gains of more than 1%.

The Dow Jones industrial average rose 160.90, or 1.2%, to 13,241.63. Broader indexes also gained: The Standard & Poor’s 500 jumped 19.40, or 1.4%, to 1,416.51, and the technology-heavy Nasdaq Composite climbed 54.65, or 1.8%, to 3,122.57.

Investors have been buoyed by good economic news, including improvements in the unemployment rate. That has boosted the equities market, with the S&P 500 near its highest point since May 2008 and the Nasdaq rising for six straight weeks.

The Fed has pledged to keep short-term interest rates near zero until at least late 2014. But some policymakers at the central bank have questioned the wisdom of extending monetary stimulus for so long, arguing that it risks setting off inflation.

In Monday’s remarks, “Bernanke made clear that the slack in the labor market is sufficient to sideline the inflation issue for the moment,” Diane Swonk, chief economist at Mesirow Financial, said in a note to clients. “Ben will continue to resist and override dissenters in his own ranks to keep and perhaps even expand monetary policy accommodation.”

Some economists have suggested that the unemployment figure has fallen sharply in part because many discouraged workers have simply dropped out of the labor force.

Bernanke said, however, that “a substantial portion” of the decline in the rate reflects genuine improvement in the labor market.

Some experts also argued that the Fed’s low-interest policy won’t help the labor market much because the main challenges involved structural problems, such as a mismatch between the skill levels of workers and the needs of employers.

But the Fed chairman made clear that he viewed insufficient demand as the main culprit for the weak labor market.

The gist of his conclusion is that “monetary policy can’t solve all the unemployment problems, but it can have a significant impact,” said Lynn Reaser, an economist at Point Loma Nazarene University in San Diego and past president of the business economic group.

If the unemployment problem was mostly structural, she said, the policy solutions wouldn’t be monetary stimulus but things like retraining and education reform.

“If he is indeed correct that [high unemployment] is a cyclical short-term problem and that it can be corrected with continued economic growth, that’s very good news for Americans worried about being trapped in long-term high joblessness,” she said.

don.lee@latimes.com

Times staff writer Joe Bel Bruno contributed to this report.

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By TARA SIEGEL BERNARD

In what it described as part of an initiative to lift the housing market, the Obama administration said Tuesday that it would make refinancing less expensive for certain borrowers with mortgages backed by the Federal Housing Administration.

“It’s like another tax cut that will put more money into people’s pockets,” President Obama said at a news conference announcing the plans, adding that he does not need authorization from Congress to make the changes.

The F.H.A. does not make loans, but insures mortgages that meet its guidelines: people with credit scores of 580 or more can put down as little as 3.5 percent. After the housing market collapsed in 2007, the number of mortgages backed by the F.H.A. surged, accounting for 40 percent of all new-purchase mortgages in 2010, up from 4.5 percent in 2005, agency figures show.

The fee reductions will apply only to borrowers seeking to refinance through the agency’s “streamline” program, which is typically less burdensome than a traditional refinancing. There are a few requirements, though the biggest drawback is that only borrowers with loans that were originated on or before May 31, 2009, are eligible. That excludes a lot of borrowers, though the White House estimated that two million to three million mortgage holders would qualify.

In addition, borrowers must have an existing F.H.A. loan that they are seeking to refinance into another F.H.A. loan. They must also be current on their payments, and no more than $500 can be taken as cash out of the loan. But the refinancing does not require any income verification or an appraisal, which means that borrowers who owe more on their mortgage than their house is worth are also eligible.

“This is one way that F.H.A. can make a real difference to help homeowners who are doing the right thing, paying their bills on time and want to take advantage of today’s low interest rates,” said Carol J. Galante, the housing administration’s acting commissioner. “By significantly reducing costs for these borrowers, we can make certain they cut their monthly mortgage burden, which will benefit the housing market and the broader economy in the process.”

The F.H.A. charges two types of fees to borrowers, and they have risen in recent years. That has prevented many borrowers from refinancing into loans with some of the lowest interest rates on record, mortgage brokers said.

Now, under the new initiative, the fee known as the upfront mortgage insurance premium will drop to a mere 0.01 percent of the loan balance from 1 percent. Meanwhile, the annual mortgage insurance premium will be cut by about half — to 0.55 percent of the loan balance from 1.15 percent. Taken together, the administration said, the fee reductions could save the typical F.H.A. borrower about $1,000 a year. That does not include any savings from a lower interest rate.

The changes follow a series of fee increases that the F.H.A. announced last month that are meant to strengthen the agency’s reserves. The higher fees will apply to borrowers taking out new mortgages and people seeking to refinance loans that originated after May 2009.

Moreover, President Obama also announced plans to provide relief for service members and veterans, including those who were wrongfully foreclosed upon or denied a lower interest rate on their mortgage.

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