Fed Chief Urges Home Foreclosure Response

Bernanke Warns Of Dangers To Economy, Calls On Congress To Act

(AP)  A rising tide of late mortgage payments and home foreclosures poses considerable dangers to the U.S. economy, Federal Reserve Chairman Ben Bernanke warned anew as he urged Congress to take additional steps to alleviate the problems.

"High rates of delinquency and foreclosure can have substantial spillover effects on the housing market, the financial markets and the broader economy," Bernanke said in a dinner speech Monday to the Columbia Business School in New York. "Therefore, doing what we can to avoid preventable foreclosures is not just in the interest of lenders and borrowers. It's in everybody's interest," he said.

Some 1.5 million U.S. homes entered into the foreclosure process last year, up 53 percent from 2006, Bernanke said. The rate of new foreclosures looks likely to be even higher this year, he said.

To provide more relief, Bernanke again called on Congress to give the Federal Housing Administration, which insures mortgages, more flexibility to help distressed borrowers at risk of losing their homes. He also again urged lawmakers to move ahead on legislation revamping Fannie Mae and Freddie Mac, which finance mortgages. And, he called on the two mortgage giants to quickly raise new capital.

House leaders plan action on those and other housing measures this week.

"Conditions in mortgage markets remain quite difficult," the Fed chief said.

The reasons behind surging late payments and foreclosures can vary and that needs to be taken into account when developing solutions, Bernanke said. For instance, parts of New England, states in the Great Lakes, including Minnesota, Michigan and Wisconsin, show increased mortgage delinquencies and "notable increases" in unemployment rates, he said.

California, Florida and parts of Colorado, on the other hand, saw delinquencies rise during a period when unemployment generally decreased but the value of homes declined, he said.

Mortgage companies are used to dealing with delinquencies related to life events, such as job loss or an illness, with the most common approaches being a temporary repayment plan or the folding of missed payments into the principal balance, Bernanke said.

"A widespread decline in home prices, by contrast, is a relatively novel phenomenon, and lenders and servicers will have to develop new and flexible strategies to deal with this issue," Bernanke said.

The current housing crisis has clobbered some borrowers home prices dropped. That left them with mortgages that are bigger than the value of their home. When that's the primary problem, Bernanke said the best solution may be reducing the amount that the borrower owes on the loan or some other permanent modification to the loan.

Rising foreclosures add to the glut of unsold homes and that puts more downward pressure on prices, aggravating the housing slump, he said. More rapid declines in house prices could have an "adverse impact" on the broader economy and the stability of the financial system, he said.

In his remarks, Bernanke did not talk about the interest rate policy or the state of the economy.

To help bolster the economy, the Federal Reserve last Wednesday cut a key interest rate by one-quarter percentage point to 2 percent and strongly hinted that it may take a breather in its rate-cutting campaign that started last September.

The Fed hopes that its powerful series of rate cuts - its most aggressive in decades - along with the government's $168 billion stimulus package - including tax rebates that started flowing to bank accounts last week - will be sufficient to lift the country out of its slump in the second half of this year.

The mortgage meltdown started with problems with subprime mortgages - those made to people with tarnished credit. However, they have spread to more creditworthy borrowers.

The trio of crises - housing, credit and financial - have threatened to plunge the country into its first recession since 2001. The situation has roiled Wall Street, rattled consumers and has galvanized politicians in the White House, in Congress and on the campaign trail to come up with proposals to provide relief.

"The Realtor's mantra is `location, location, location' ... local variation in housing and mortgage markets is considerable," Bernanke said. "This variation is useful for understanding the sources of the increase in mortgage delinquencies and foreclosures, and it should be taken into account as servicers and policymakers consider how best to avoid preventable foreclosures," he said.

[ov442]

Bernanke, You are goin up against Bushy. He just said, he would VETO anything that would help poorer Americans or Americans in financial trouble. He has us where he wants us now, and his colleagues in Corporate crime will not stop now.
We shall call them, "The League of Extraordinarily Rich Bloodsuckers" LERB

[forthepeopl1]

ALL THEY HAVE TO DO IS MAKE ALL MORTGAGES FROM 2000 TO 2007 ALL GET RE-FI AT A GOOD RATE LIKE 1 OR 2 POINTS OVER PRIME, THATS ALL AND IT WOULD STOP EVERYTHING ONCE AND FOR ALL.

TAKE WHAT THE MORTGAGE IS NOW MINUS 60 % PERCENT OFF AND RE-FI EVERYONE..THIS WOULD STOP IT ALL, AND STOP PUTTING GOOD AMERICANS ON THE STREET.

I JUST HAD MY REALTOR APPRAISE MY HOME I BOUGHT 6 YEARS AGO, PAYED 300,000 FOR IT NOTHING SPECIAL IN A SMALL TOWN IN MASS, NOW HE SAID ITS WORTH MAYBE 150,000 BUT REALLY THINKS IT WORTH 100,000..SO GUESS WHAT WHAT THE BANK WILL OWN IT FOR 300,000 BECAUSE THEY DONT WANT TO HELP IN MAKEING THE VALUE THE 100,000 TO 150,000, AND EVEN AT THAT RATE HE SAID IS BETTER THAN WHAT THEY ARE GETTING AT FORCLOSER SALES, THEY ARE GETTING 20 TO 30 CENTS ON THE DOLLAR. SO IT WOULD MAKE SENCE TO JUST RE-FI EVERYONE AT 40 PERCENT AND START OVER. THIS WOULD STOP EVERYTHING...

[e-mail]

[forthepeopl1]

to nonayabiness, the property was appraised by the bank at the time of the loan 6yrs ago for 450,000 so they said to me i was way ahead of the game, and the bank had three appraisels done all had the same figures and all from differant appraisle companys..you what would you say now big man, and my credit is 800 plus big man, this mess is going to crush us avergage americans, and they dont care....and the problem was letting investment banks make deals on mortgages in the first place, they sold bundles of 10 billion in mortgages and then they found out they were only worth 5 billion ( maybe ) now they are worth 1 or 2 billion. they made the mess not us good americans trying to do the right thing..

[Syndicate]

NonayaBiness: That might have been bad advice. If they can buy a house they should. A lot of people don''t think long term. In 1960 a house was $10,000, in 1980 a house was $30,000, in 1990 they were $80,000. Now they are $200,000. If you buy a house and loose it big deal you tried. You could have thrown your money away buy renting.

[bm6005]

you can always help bgwinnett pick grapes i guess

Posted by jamesm12341

Or perhaps you pick your nose!!

[Syndicate]

Let me try that again-Bernanke is a highly paid academic w-h-o-r-e.
Don''''t forget,at least you get your money''''s worth when you visit your local entertainer.

Posted by mediapreachr at 03:38 PM : May 06, 2008

I agree. Bernanke started this mess when he went crazy last June raising rates. He should be fired.

[nonayabiness]

I''ve warned my younger siblings, recently out of college and on their own, do NOT buy a house until you have not only the proper 20% downpayment, but enough liquid assets to pay for at least 50% of the mortgage.

[nonayabiness]

forthepeopl1

If you paid 300K for a ''nothing special'' home in a small town, then my friend, you WAAAAY overpaid, and are a contributor to this housing fiasco.

Getting your own realtor to assess your home was a mistake. Why would your realtor ever sell you a 100 or 150k home for 300k in the first place? Commissions. Why would your realtor say its now worth 100 to 150k now? Commissions. They are hoping you''d be willing to sell at a price so ridiculous that they will get the quick sale.

[voidmaster-2009]

Actually about the only thing what is going to fix this problem is when the economy gets so bad that the average consumer will be able to save for ten years or so then pay cash for a house. Of course, that means that the consumers that refuse to learn how to save will continue to rent. Oh well...

[voidmaster-2009]

I will just wait a while longer then buy a couple of repos at half their worth. Who knows; I might even be able to buy three or four.

I can always live in one and rent out the others.

[lizardbate]

It''s always protect the rich with our elected officials!!!!!!! To hell with the little man!!!!!! Maybe this is one time, the rich may lose. They can''t live in all the foreclosed houses and they can''t sell them.????????? I am in belief as another writer, cut the " greed and cut the interest rates on their home loans and most people could afford them. Now their is the group that bought to flip, again to get rich off the little guy and it blowed up in their faces and their going to end up like the little guy!!!!! Then, there is the group that bought a lot more house than they could ever come close to affording, well I am sorry for you guys there can''t be much help given if any.

[element51]

jamesm12341....Once again I feel compelled to respond to your stupid post. Just where the helll do you get off saying that "most libs aren''t educated and rely on government for help"? People like you absolutely amaze me. I consider myself a liberal. I am college educated, masters degree, a teacher for 26 years, and have never relied on government for anything except to tax the *** out of me. You seem to believe that you are somehow superior to anyone who takes a different stand than you. I''ve read post after post from you and most of them offer nothing constructive at all. Just snide remarks and insults. Get that stick out of your arse sonny and step down off your high horse. Someday you may have to ask for a little help so maybe you should learn a little humility. You really never know what little surprises life might have in store for you.

[forthepeopl1]

ALL THEY HAVE TO DO IS MAKE ALL MORTGAGES FROM 2000 TO 2007 ALL GET RE-FI AT A GOOD RATE LIKE 1 OR 2 POINTS OVER PRIME, THATS ALL AND IT WOULD STOP EVERYTHING ONCE AND FOR ALL.

TAKE WHAT THE MORTGAGE IS NOW MINUS 60 % PERCENT OFF AND RE-FI EVERYONE..THIS WOULD STOP IT ALL, AND STOP PUTTING GOOD AMERICANS ON THE STREET.

I JUST HAD MY REALTOR APPRAISE MY HOME I BOUGHT 6 YEARS AGO, PAYED 300,000 FOR IT NOTHING SPECIAL IN A SMALL TOWN IN MASS, NOW HE SAID ITS WORTH MAYBE 150,000 BUT REALLY THINKS IT WORTH 100,000..SO GUESS WHAT WHAT THE BANK WILL OWN IT FOR 300,000 BECAUSE THEY DONT WANT TO HELP IN MAKEING THE VALUE THE 100,000 TO 150,000, AND EVEN AT THAT RATE HE SAID IS BETTER THAN WHAT THEY ARE GETTING AT FORCLOSER SALES, THEY ARE GETTING 20 TO 30 CENTS ON THE DOLLAR. SO IT WOULD MAKE SENCE TO JUST RE-FI EVERYONE AT 40 PERCENT AND START OVER. THIS WOULD STOP EVERYTHING...

[e-mail]

[mediapreachr]

Let me try that again-Bernanke is a highly paid academic w-h-o-r-e.
Don''t forget,at least you get your money''s worth when you visit your local entertainer.

[mediapreachr]

Bernanke is just another highly paid academic w-*** looking out for the interests of billionaires.
Not a word about the high price of oil-over 120 today.
I guess he thinks we''re stupid-he''s directly responsible for the value of the american peso-high prices for everything starting with the basics-food,rent,fuel.The misery goes on.

[forthepeopl1]

ALL THEY HAVE TO DO IS MAKE ALL MORTGAGES FROM 2000 TO 2007 ALL GET RE-FI AT A GOOD RATE LIKE 1 OR 2 POINTS OVER PRIME, THATS ALL AND IT WOULD STOP EVERYTHING ONCE AND FOR ALL.

TAKE WHAT THE MORTGAGE IS NOW MINUS 60 % PERCENT OFF AND RE-FI EVERYONE..THIS WOULD STOP IT ALL, AND STOP PUTTING GOOD AMERICANS ON THE STREET.

I JUST HAD MY REALTOR APPRAISE MY HOME I BOUGHT 6 YEARS AGO, PAYED 300,000 FOR IT NOTHING SPECIAL IN A SMALL TOWN IN MASS, NOW HE SAID ITS WORTH MAYBE 150,000 BUT REALLY THINKS IT WORTH 100,000..SO GUESS WHAT WHAT THE BANK WILL OWN IT FOR 300,000 BECAUSE THEY DONT WANT TO HELP IN MAKEING THE VALUE THE 100,000 TO 150,000, AND EVEN AT THAT RATE HE SAID IS BETTER THAN WHAT THEY ARE GETTING AT FORCLOSER SALES, THEY ARE GETTING 20 TO 30 CENTS ON THE DOLLAR. SO IT WOULD MAKE SENCE TO JUST RE-FI EVERYONE AT 40 PERCENT AND START OVER. THIS WOULD STOP EVERYTHING...

[e-mail]

[far_point200]

Texas housing values dropped over 50% and was mired in a depression for 10 years after oil prices collapsed in the early 1980''s.

No help from the Federal government was ever received and the average Fed Fund rate during the entire period exceeded 6%.

Texas made it on its own just fine.

Perhaps less government and Fed envolment is what is needed. Why not let market forces work on their own.

[oilfix]

The blogs are in agreement Freddie & Fannie are in terrible shape. To take on more debt, in this market, is beyond reckless.
So, what do you think they and the feds are up to?
Bad debt dump site-- bankruptcy--asset stripping--
what''s left is taxpayers problem, would be a good guess.

[drivelphobe]

The fluctuating value of one''s home should not make any difference. You buy a hoe to live in on a long term basis. The scumbags who made purchases to flip or take advantage of "exotic" loan packages, deserve to take it in the shorts. The lenders who participated greedily should also pay the price. Bernanke is wrong to get involved in this. Let the chips fall where they may. Screw everyone who sought to unjustly benefit from their greed.

[naucoming4u]

Old Ben is soft peddling the dangers to the U.S. economy and pointing a finger at the congress. How is this going to help if your house is worth 20% less than your mortgage payoff. You would be smart to walkaway.

Posted by Oscarez at 11:02 AM : May 06, 2008
...........

That''s absolutely true. And the banks will get their bail-outs, no matter how many mortgages they are left holding.

Sadly, for many, "walking away" is the only option they have now. All the greedy and unscrupulous mortgage lenders/bankers got their fat pay checks, unfortunately with no repercussions for their actions.