U.S. Federal Reserve Chairman Ben Bernanke on Thursday urged the government to consider sweeping steps to prevent foreclosures, including buying risky mortgages and refinancing them under more favorable terms to homeowners.

[Ben Bernanke]
Bernanke

“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 in prepared remarks to a Fed housing conference. “More needs to be done,” he said.

Bernanke estimated that lenders are on track to initiate 2.25 million foreclosure proceedings this year, more than double the rate before the crisis. He also cited estimates showing as many as 15% to 20% mortgages may be “under water,” meaning more is owed on the house than it is worth.

And the housing crisis has “become inextricably intertwined with broader financial and economic developments,” Bernanke said.

Housing weakness has been a drag on the overall economy, he explained, while “a slowing economy has in turn reduced the demand for houses, implying a further weakening in the mortgage and housing markets.”

To stem that feedback loop, the Fed has already lowered official interest rates sharply. The target federal funds rate sits at just 1%, and officials are widely expected to lower that rate by at least another 0.5 percentage point when it meets Dec. 15-16, bringing the fed funds rate down to levels not seen in a half-century.

“To the extent that more accommodative monetary policies make credit conditions easier and incomes higher than they otherwise would have been, they support the housing market,” he said.

Bernanke also outlined a series of additional steps the government can take. One would be to increase participation in the Hope For Homeowners program, which puts delinquent borrowers into new Federal Housing Administration-insured mortgages.

To bring down the rate borrowers pay under that program, Treasury could purchase Ginnie Mae securities that are tied to interest rates that borrowers pay, Bernanke said. “Alternatively, Congress could decide to subsidize the rate,” Bernanke said.

Bernanke also said a “promising proposal” would be for the government to “purchase delinquent or at-risk mortgages in bulk and then refinance them into the (Hope for Homeowners) or another FHA program.” –Brian Blackstone


source: wsj.com

link to the original post:
http://blogs.wsj.com/economics/2008/12/04/bernanke-more-needs-to-be-done-to-stem-foreclosures/


Fort Lauderdale Blog and Real Estate News
Rory Vanucchi
RoryVanucchi@gmail.com

http://waterfrontlife.blogspot.com
www.FortLauderdaleLiving.net