Manuel Balce Ceneta, AP
Chairman of the Federal Reserve System Ben Bernanke testifies on Capitol Hill in Washington before the House Financial Services Committee.

Ben Bernanke, Chairman of the Federal Reserve System, sent a letter to finance and banking committee leaders in both the Senate and the House in early January. In this letter,

Bernanke outlined some of the significant challenges facing the U.S. residential housing market. He also suggested some potential remedies to these problems.

Bernanke's concern about the health of the housing market may imply some broader concerns the chairman and the rest of the Fed leaders have with the lagging economic recovery.

Employing its traditional tool to affect inflation and job growth, the Fed has pledged to keep short-term interest rates at all-time lows until at least mid-2013.

Through operation Twist, the Fed has sold shorter term U.S. Treasury notes from its portfolio to purchase longer term Treasury notes and bonds in an effort to bring longer term interest rates down.

The 10 year maturity U.S. Treasury note is generally considered the reference rate associated with traditional, fixed rate, 30 year maturity, residential mortgages. Currently, the interest rate on the 10 year maturity Treasury note is hovering around 2 percent. In comparison, the yield on the 10 year Treasury note was about 3.4 percent one year ago. Two years ago, the 10 year Treasury yielded about 3.8 percent.

These interest rate lowering efforts are intended to spur economic activity. Even with very low interest rates, the U.S. economy continues to muddle along. As stated in the January letter from Bernanke, "Restoring the health of the housing market is a necessary part of a broader strategy for economic recovery."

Because many people have such a significant portion of their overall net worth tied up in their homes, falling home values tend to dampen the propensity of consumers to spend money on discretionary items.

In aggregate, it is estimated homeowners have now lost as much as half the built up equity they had in their homes in 2006. Bernanke states, "Currently, about 12 million homeowners are underwater on their mortgages — more than 1 out of 5 homes with a mortgage."

By reaching out to Congress to assist the Fed in spurring economic recovery, the Fed may be signaling its traditional tools, which focus on managing interest rates, are not sufficient in today's difficult environment.

Igniting the economy will require a broader set of policy solutions. Initiatives to spur stabilization of housing prices and lead to future housing appreciation are deemed essential by the Bernanke. Necessary solutions are apparently beyond the traditional activities of the Fed.

Kirby Brown is the CEO of Beneficial Financial Group in Salt Lake City.