04 March 2008

Bernanke calls for additional relief to reduce preventable foreclosures

Federal Reserve Chairman Ben Bernanke called Tuesday for additional relief and urged lenders to help distressed owners by lowering the amount of their loans. Warning that mortgage delinquencies and foreclosures are likely to rise, with more declines in house prices, Bernanke called for active measures from both the public and private sectors to stabilize housing markets.

"This situation calls for a vigorous response," Bernanke said in a speech to a banking group meeting in Orlando. “Measures to reduce preventable foreclosures could help not only stressed borrowers but also their communities and, indeed, the broader economy.”

 “Delinquencies and foreclosures likely will continue to rise for a while longer”, Bernanke said noting that delinquency and default rates have risen quickly, and servicers report that they are struggling to keep up with the increased volumes. “In this environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure”, he said.  

"Reducing the rate of preventable foreclosures would promote economic stability for households, neighborhoods and the nation as a whole," Bernanke said. "Although lenders and servicers have scaled up their efforts and adopted a wider variety of loss-mitigation techniques, more can, and should, be done," the Fed chief said.

Pointing to the government-sponsored enterprises, Fannie Mae and Freddie Mac, Bernanke said that these ‘could do a great deal’.

“New capital-raising by the GSEs, together with congressional action to strengthen the supervision of these companies, would allow Fannie and Freddie to expand significantly the number of new mortgages that they securitize”, he said. “With few alternative mortgage channels available today, such action would be highly beneficial to the economy. I urge the Congress and the GSEs to take the steps necessary to allow more potential homebuyers access to mortgage credit at reasonable terms.”

Full speech

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