Allan Mendelowitz, a member of the Board of Directors of the FHFB -- a regulatory agency for banks providing home loans -- noted the demand and supply situation painted a bleak picture for the U.S. housing sector.
"The problems in the housing sector are not over... Even statistics that look positive are an illusion of a much more problematic situation," Mendelowitz told delegates at the annual meeting of the Asian Development Bank.
"There is still tremendous excess supply. Demand is not coming back, if for no other reason than the fact that potential buyers are sitting on their hands."
He added: "My own view is you need to intervene in the housing supply side to avoid foreclosures and keep additional supply from coming out into the crowded market. You need to jumpstart demand -- intervention to incentivise (potential buyers) so they get off the sidelines and start buying again."
The U.S. House of Representatives Financial Services Committee last week approved a sweeping bill to enable the government to finance $300 billion in distressed mortgages with the aim of helping two million homeowners.
The legislation would provide an infusion of capital and a new mandate for the Federal Housing Administration to backstop home loans that have sunk in value since they were made.
Declining home values and rising foreclosures over the past 12 months have darkened the mood of consumers and pushed the U.S. economy towards recession.
Mendelowitz said the Federal Reserve, which cut interest rates by seven times since September, had been initially slow in responding to the crisis. However, given what Japan has gone through after the asset bubble burst in 1990s, easing monetary policy alone is not sufficient.
"You cannot fix structural problems with the macroeconomic response," he said.
The latest interest rate cut by the Fed took the cost of borrowing to 2.0 percent, its lowest since December 2004.
Meanwhile President George W. Bush has signed into law a $150 billion economic stimulus package designed to spur the ailing economy by giving tax rebates to millions of Americans.
Mendelowitz also said investment banks -- the epicenter of the nine-month-old credit crisis -- could expect to face great regulation in future.
"Additional regulation cannot be far behind. There is a good chance that at the end of the day investment banks will be subjected to regulation not that different from what (retail banks) are now subjected to," he said.
"So there is potential to make a dramatic change within the investment banking world."
Source: Reuters UK