On January, 4th, Federal Reserve Chairman Ben Bernanke sent a letter and white paper to Congress outlining his insights and recommendations on restoring the health of the U.S. housing market.

Among the key findings on current market conditions:

• Housing prices remain 33% below their early 2006 peak
• Currently, 1 in 5 mortgage holders are underwater (12 million homeowners)
• In states with the price declines (i.e. Nevada, Arizona and Florida) roughly half of all mortgage borrowers are underwater on their loans
• The number of properties currently in the foreclosure process is more than four times larger than the number of properties in REO inventory

The white paper suggests that no single solution exists and that progress will come through “persistent and careful efforts to address a range of difficult and interdependent issues”—a position we have always stressed.

Among these efforts, the paper strongly recommends incentives for alternatives to foreclosure, namely a short sale or deed-in-lieu.

The white paper also emphasizes a fact we are all too aware of: foreclosures drive down property values in the surrounding area and lead to a “ripple-effect” that harms homeowners, lenders and taxpayers alike.