money.cnn.com/news/newsfeeds/articles/newstex/AFX-0013-23516253.htm
Edit Alerts TRADING CENTER Bernanke urges more principal writedowns to avert foreclosures UPDATE March 04, 2008: 11:08 AM EST (updates analyst comment) WASHINGTON, Mar 4, 2008 (Thomson Financial delivered by Newstex) -- Federal Reserve Board chairman Ben Bernanke today called for vigorous action by mortgage lenders to avoid foreclosures and help stabilize the housing market as well as the economy. He had nothing to say about current monetary policy or the economic outlook other than that he expects house prices to continue to decline. Bernanke said writing down the principal on many more mortgages could not only do more to stabilize house prices in the long term, but is in the lenders' and investors' best economic interest. In many cases, when a homeowner has little or no equity left, 'a stressed borrower has less ability and less financial incentive to try to remain in the home,' Bernanke said. Typical loan modifications have so far focused on interest rate reductions and principal writedowns have been 'quite rare', Bernanke said in prepared remarks to a community bankers convention in Orlando. That could simply be because the mortgage servicers are more familiar with rate reductions, he said. There are substantial incentives for lenders to modify loans to avoid foreclosure. Bernanke cited statistics from the fourth quarter of last year that showed total losses exceeding 50 pct of the principal balance plus another 10 pct of capital loss for expenses in a typical foreclosure. The barriers include rules of the trusts holding the mortgages, compliance costs and litigation risks. If house prices continue to fall they might be pressured to write down principal again. If house prices turn up instead, they will not share any of the gains. There has been some progress in reducing the disincentives for workouts, Bernanke said. While lenders and servicers in the HOPE NOW alliance and American Securitization Forum have worked out some standardized foreclosure avoidance plans, they may offer only 'temporary palliatives which may only put off foreclosure and perhaps increase ultimate costs,' Bernanke said. That would 'remove the downside risk to investors of additional writedowns or a re-default'. What Bernanke is trying to convince the lenders 'is that it is far more preferable that the markets absorb the losses caused by a combination of unwise lending, minimal risk management practices and outright loan fraud than having Washington craft a Resolution Trust Corporation style bailout of financial institutions, banks and speculators,' Brusuelas said. Bernanke also urged Congress to move quickly on modernization of the Federal Housing Administration rules that would allow it to guarantee many more refinancings. He also urged it to enact better supervision for Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) That, combined with new capital-raising would allow them to 'expand significantly' the number of mortgages they securitize and do more to help distressed borrowers. Asked about the burden new mortgage lending regulations might pose, Bernanke pointed out that the small community banks represented at the convention have only rarely gotten into the subprime business. If, however, they decide to begin helping distressed homeowners in their communities, the new regulations will at least put them on a level playing field with the non-bank mortgage lenders, who have until now dominated the field. com dem/ss/dem/jrr/dem/wash/cmr Copyright Thomson Financial News Limited 2007. The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.
Business Leader Council Live Quotes automatically refresh, but individual equities are delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes.
MarketWatch, the MarketWatch logo, and BigCharts are registered trademarks of MarketWatch, Inc. Intraday data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges.
|
http://csua.com/feed/