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
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.
Write to Diana Golobay