Financial Watch

A proposal to audit the Federal Reserve gained momentum in the U.S. Senate on Thursday after the measure was softened at the last minute to address concerns raised by the central bank and Obama administration.

The full Senate may vote as soon as Thursday to include the audit proposal in a broad overhaul of financial regulation that would strip the Fed of its authority to supervise thousands of regional banks.

At least 20 Democratic and Republican lawmakers support the amendment from Senator Bernie Sanders, which would expand congressional investigators’ powers to audit the Fed. A bill approved by the House of Representatives in December contains a similar provision.

Today, the Financial Crisis Inquiry Commission continues its fourth round of hearings on the origins of the recession, with the current and former Treasury secretaries, Timothy Geithner and Henry Paulson, speaking on the shadow banking system — comprising financial companies like Goldman Sachs that are technically not banks because they do not take deposits.

In his prepared testimony, Paulson cites governmental homeownership policy as the underlying reason for the housing bubble and ensuing credit crunch:

Freddie Mac, the second-largest US mortgage finance company, said on Wednesday it would need an additional $10.6bn from the US Treasury Department to staunch losses on bad loans.

The company said it had lost $8bn, or $2.45 per share, in the first three months of 2010. The amount includes a $1.3bn dividend payment to the Treasury Department on senior preferred stock issued as part of a 2008 government-led bail-out. Along with larger rival Fannie Mae, Freddie is propping up the housing market by purchasing mortgages in the secondary market.

The number of vacant housing units in the United States increased to a record 19 million in the first quarter of the year, up from 18.9 million in the fourth quarter, the Commerce Department reported Monday. About 14.5% of homes were vacant, with 4.4 million available to be rented and 2 million available to be sold.

Housing construction posted a better-than-expected performance in March, rising to the highest level in 16 months. Strength in the U.S. South offset declines in the rest of the country, according to government figures.

Fannie Mae’s economists see signs of a strengthening economy but say the housing market still faces headwinds.

In its April Economic Outlook, Fannie Mae says excess inventory and foreclosure sales are hindering the housing market. New home sales are at record lows and will be slow to recover until inventory of existing homes and foreclosure overhang are worked off, Fannie Mae says.

It notes some positive signs for housing, particularly rising existing home sales, including pending sales and purchase applications.

On the broader economy, Fannie Mae forecasts 2010 economic growth of 3.1 percent.