Continued declines in U.S. home prices will force financial firms to write down $1 trillion from their balance sheets, Pacific Investment Management Co.'s Bill Gross said in commentary published Thursday.

Further, Gross, who manages the world's largest bond fund, said the write-downs will constrict bank lending and require asset sales, and that either of which will affect economic growth.

Also, Gross called federal housing assistance legislation currently up for debate in the U.S. Senate following U.S. House approval Wednesday "the best way to begin the long journey back to normalcy," in the housing sector.

The legislation includes provisions that grant the U.S. Treasury the authority - - for 18 months - - to extend an unlimited line of credit and/or to buy shares in - - Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), marketwatch.com reported Thursday. Fannie and Freddie own or guarantee about one-half of the $12 trillion U.S. mortgage market.

Further, Gross added that the federal housing legislation will be effective only if it simultaneously lowers the cost of mortgage credit. Lower mortgage rates will speed the recovery in home prices, Gross added - - a critical factor in the sector's recovery.

Economic / Housing Sector Analysis: One argues with PIMCO's Gross about bonds and interest rates only at one's peril, so no comments will be forwarded in that direction. Further, given Gross's conclusion that both liquidity for Fannie and Freddie and lower mortgage rates are needed to begin the housing sector's long, slow recovery, it's hard to evaluate the housing assistance legislation until we know its content. But clearly the provision allowing distressed homeowners to refinance into more-affordable, fixed-rate loans backed by the Federal Housing Administration to stem both the rise in foreclosures and the decline in home prices, is essential. Here's hoping the U.S. Senate does not delete the provision. Stay tuned.