...tell me why I should make my mortgage payments on time when it looks like falling a few months behind would be a benefit?
Creativity needed to limit foreclosures: Bernanke
By Greg Robb, MarketWatch
Last update: 9:07 a.m. EST March 4, 2008
WASHINGTON (MarketWatch) -- The mortgage and financial-services industry will have to use fresh thinking to reduce preventable foreclosures, said Federal Reserve Board Chairman Ben Bernanke on Tuesday.
A willingness to consider new ideas has been a hallmark of the Bernanke Fed in the months since the financial market turmoil began last summer. For instance, the central bank has begun novel auctions of liquidity to get around the unwillingness of banks to borrow at the Fed's discount window.
In a speech to community bankers in Orlando, Fla., Bernanke urged the banking industry to consider new approaches.
"Efforts by both government and private-sector entities to reduce unnecessary foreclosures are helping but more can, and should, be done," Bernanke said. 'Measures to reduce preventable foreclosures could help not only stressed borrowers but also their communities and, indeed, the broader economy.'
Ultimately, Bernanke said, real relief for the mortgage market requires stabilization and recovery in the nation's housing sector. Economists estimated on Monday that house prices will continue to fall and that perhaps only half of the decline has been realized. Bernanke said delinquencies and foreclosures will continue to rise for a while longer. This will likely add to the inventory of vacant unsold homes -- already at more than 2 million units at the end of 2007, he said. More coverage of the U.S. economy
"This situation calls for a vigorous response," Bernanke said.
"Measures to reduce preventable foreclosures could help not only stressed borrowers but also their communities and, indeed, the broader economy," he added.
One of the difficulties in working out problem loans is a thicket of complications arising from the fact that the loans were bundled into packages, then securitized and sold. These packages differ in the type and scope of workouts permitted by loan servicers.
Bernanke said that holders of the securitized mortgages should permit servicers to write down the mortgage liabilities of borrowers. He said financial firms should consider reducing the principal of the trouble loans and not only lowering the interest rate of the loans.
Permitting the Federal Housing Administration greater latitude to set underwriting standards and risk-based premiums for mortgage refinancing would help more troubled borrowers, he said.
Finally, new capital-raising by Fannie Mae and Freddie Mac would allow the firms to expand the number of new mortgages they securitize.