""Federal Reserve"":http://www.federalreserve.gov Chairman Ben Bernanke made a public plea to the federal government on Thursday to take a more aggressive stance in the fight against foreclosure and consider government-funded programs to provide assistance for struggling homeowners.
""Despite good-faith efforts by both the private and public sectors, the foreclosure rate remains too high, with adverse consequences for both those directly involved and for the broader economy,"" Bernanke said at a Fed conference on housing and mortgage markets in Washington. ""More needs to be done,"" he said.
Bernanke then proposed several ideas, including using taxpayer money to purchase delinquent mortgages in bulk and refinance them into government-backed securities;
writing down the value of a loan's principal amount in ""cases of badly underwater mortgages,"" to reflect declining home values; and bolstering a program run by the ""Federal Deposit Insurance Corporation"":http://www.fdic.gov (FDIC) that seeks to lower homeowners' monthly payments.
To ease banks' potential opposition to government-engineered loan modifications, Bernanke said the government could share losses with the lender if a borrower re-defaulted and could pay lenders $1,000 for every loan modification made. He said the government and the lender could also split the costs of reducing mortgage payments to better align with homeowners' income. Bernanke's servicer incentives are similar to a program recently put forth by Sheila Bair, FDIC chairman and crusader for a government-led foreclosure assistance program - a program that was quickly shelved by the Bush Administration last month.
Bernanke also said the government should strengthen its ""Hope for Homeowners"":http://portal.hud.gov/portal/pagex_pageid=73,7601299&_dad=portal&_schema=PORTAL (H4H) program, which lets lenders refinance underwater loans into government-insured, fixed-rate mortgages if they are willing to write down a portion of the loan principal. Few have taken part in the program, and Bernanke suggested it might see more interest if mortgage rates for the refinancings were lowered, or if the three percent insurance premium lenders must pay was reduced.
The Bush administration has come under fire of late for side-stepping the housing industry in its quest to rescue and resuscitate the national economy, particularly when it announced that it had decided not to buy up toxic mortgage assets - the original premise, and promise, of Congress' $700 billion financial aid package - and when it shot down Bair's loan modification proposal. Treasury Secretary Henry Paulson, and even Bernanke, have previously been focused on jolting the economy back to normalcy, primarily through bank recapitalization efforts.
Bernanke said yesterday, though, ""Weakness in the housing market has proved a serious drag on overall economic activity. Steps that stabilize the housing market will help stabilize the economy as well.""
But in a question-and-answer session after his speech, Bernanke rejected the notion of federal support for declining housing prices, the %{=FONT-STYLE: italic}Associated Press% reported. ""I don't think we would be either willing or able to target house prices,"" he said. ""I think that would probably be an impossible thing to do given the size of the national housing market.""
Instead, he suggested extending support that would give more borrowers access to affordable lending. That seems to be the primary objective of the ""proposal put forth"":http://dsnews.comindex.php/home/news_story/2256 by the ""Treasury Department"":http://www.treasury.gov and Secretary Paulson this week to subsidize 30-year mortgage interest rates, bringing them down to a mere 4.5 percent, a rate that home buyers haven't seen since the 1960s.
But the cheap mortgages would be available only for people buying houses, not those facing foreclosure and the roughly 50 million families that already have mortgages and would want to refinance at a lower rate, %{=FONT-STYLE: italic}The New York Times% reported. Homeowners who now pay 6 percent would have new neighbors moving in whose monthly payments were almost one-third lower, the %{=FONT-STYLE: italic}Times% said.
Still, both messages this week from the nation's top financial officials indicate that the Bush administration has decided to take a more direct approach to tackling the housing industry's crippling issues. President-elect Barack Obama has been quite vocal in pledging that his administration will make the foreclosure crisis and housing recovery a top priority.