Partners (Number 1, 2008)

Foreclosure Mitigation Work Continues

Juan Sanchez The news is full of discussion about today's real estate market, especially foreclosure trends. While most would agree that foreclosures are undesirable for displaced families and affected neighborhoods, many people oversimplify the complex realities of markets.

One market reality is that work-outs are more difficult today than they were a decade or two ago. Then a borrower in distress could negotiate with the loan originator, which carried the loan on its books. But the system shifted with the advent of new loan products and mortgage securitization fueled by investor appetites.

Complex investment instruments that slice and dice loan pools into tranches priced for risk have made foreclosure negotiations more difficult in many cases. Now a single loan may be represented in many different investment portfolios.

The Federal Reserve will continue to take steps to address the current real estate market and help curtail foreclosures. Through its rule-writing authority, the Fed proposes to amend Regulation Z, which implements the Truth in Lending Act and Home Ownership and Equity Protection Act.

The proposed changes enhance mortgage transparency and offer additional consumer protections from unfair, abusive or deceptive lending, advertising and servicing practices while preserving responsible lending and sustainable homeownership. The proposal also calls for transaction-specific disclosures to help consumers make informed decisions while shopping for a mortgage.

The Fed will use multiple data sets to monitor foreclosure levels and assess the impact in our communities. This research will identify the hardest hit markets as we develop mechanisms to reduce foreclosure rates. In addition the Fed will help to develop public and private partnerships for the acquisition, rehab and sale of foreclosed properties to prevent neighborhood deterioration.

The Fed's Community Affairs offices are partnering with nonprofit organizations, financial institutions and other agencies working at the ground level to implement foreclosure mitigation strategies and help consumers understand their options.

Finally, the Federal Reserve is building a communication strategy to inform policymakers and educate our community constituents about issues related to foreclosure, including a recent podcast and a DVD. A series of national forums hosted by the Fed will help define best practices with financial markets and build mechanisms that mitigate foreclosure risk.

The Federal Reserve System is committed to working with our partners to reduce preventable foreclosures, strengthen opportunities for future homeownership and ensure economic stability in our communities.

Juan C. Sanchez
Community Affairs Officer