|Fed Chair Urges Action to Stem Foreclosures
Concerted action by federal regulators and mortgage lenders could slow the pace of home foreclosures and mitigate the effects on hard-hit neighborhoods, Federal Reserve Chairman Ben Bernanke said in a speech earlier this month. Emphasizing the importance of stabilizing communities struggling with large numbers of foreclosures, he said that lenders should consider reducing the principal of some customers’ loans to help them avoid foreclosure, and government agencies should intervene to improve underwriting standards.
No single actor can bring resolution, chairman says
At the same time, he proposed that Fannie Mae and Freddie Mac, the government sponsored enterprises (GSEs) that are the biggest sources of money to U.S. mortgage markets, could play a larger role in stemming the rise in foreclosures. He noted that Congress recently authorized the enterprises to securitize larger mortgages and that "now is an especially appropriate time for the GSEs to move quickly to raise significant new capital, which they will need to take advantage of these new securitization and investment opportunities . . . and to do so in a safe and sound manner."
Lenders should examine principal balances
"When the source of the problem is a decline of the value of the home well below the mortgage’s principal balance, the best solution may be a write-down of principal or other permanent modification of the loan by the servicer, perhaps combined with a refinancing by the Federal Housing Administration or another lender," he said.
May 16, 2008