\nWASHINGTON – Fighting to stem a dangerous wave of home foreclosures, Federal Reserve Chairman Ben Bernanke pledged Friday to do all that is possible to help struggling homeowners.\n<\/p>\n
\nThe Fed is \u201cstrongly committed to fully employing our authority, expertise and resources to help alleviate their distress,\u201d Bernanke said in a speech to the National Community Reinvestment Coalition\u2019s annual meeting here.\n<\/p>\n
\nRecord-high foreclosures are aggravating problems in the housing market and for the national economy, which many fear is on the verge of a recession or in one already.\n<\/p>\n
\nBernanke didn\u2019t offer new recommendations \u2014 as he did earlier this month \u2014 but rather spoke of the various steps the Fed already is taking to address current problems and to prevent another crisis of this sort.\n<\/p>\n
\nThe Fed, for instance, has proposed a rule to protect homebuyers from some of the same dubious lending practices that contributed to the housing and credit debacles now shaking the country. Subprime borrowers \u2014 those with tarnished credit histories or low incomes \u2014 have been hurt the most, although problems have spread to more creditworthy borrowers.\n<\/p>\n
\n\u201cFar too much of the lending in recent years was neither responsible nor prudent,\u201d Bernanke said. \u201cThe terms of some subprime mortgages permitted homebuyers and investors to purchase properties beyond their means, often with little or no equity,\u201d he added. \u201cIn addition, abusive, unfair or deceptive lending practices led some borrowers into mortgages that they would not have chosen knowingly.\u201d\n<\/p>\n
\nAt the end of last year, more than one in five of the roughly 3.6 million outstanding subprime adjustable-rate mortgages were seriously delinquent \u2014 meaning they were either in foreclosure or 90 days or more past due. That rate is about four times higher than it was in the middle of 2005, he said.\n<\/p>\n
\nMeanwhile, in 2007, about 45 percent of foreclosures were on prime, near-prime or government-backed mortgages, he added.\n<\/p>\n
\nThe meltdown in the housing and credit markets are not only straining homeowners but also have forced financial companies to rack up multibillion losses. The situation has unhinged Wall Street, put the Federal Reserve and the Bush administration in crisis-management mode, rattled the public and sent politicians \u2014 including those vying to be the next president \u2014 scrambling for solutions.\n<\/p>\n
\nBailing out Bear Stearns Cos.
\nUnderscoring the urgency: Bear Stearns Cos., one of Wall Street\u2019s venerable investment banks, received a rescue package by the Federal Reserve and JPMorgan Chase & Co. on Friday \u2014 just hours before Bernanke spoke. It was a last-ditch effort to save the institution.\n<\/p>\n
\nThe Federal Reserve responded swiftly to pleas from Bear Stearns that its coffers had \u201csignificantly deteriorated\u201d within a 24-hour period. The bank, which had made a fortune in mortgage-backed securities, has ran up $2.75 billion in write-downs since last year, and faced a possible collapse without some kind of lifeline.\n<\/p>\n
\nBefore launching into his prepared remarks, Bernanke mentioned that he had a \u201cbusy morning.\u201d He did not elaborate.\n<\/p>\n
\nTo help brace the economy from all the fallout, the Federal Reserve is expected to cut a key interest rate, now at 3 percent, next week. The debate is whether it will be a half percentage point or an even bigger three-quarter-point reduction. Bernanke, in his speech, did not provide clues on that front.\n<\/p>\n
\nInstead, the Fed chief\u2019s speech stuck closely to steps the Fed is taking to prevent prospective homebuyers from getting burned in the future when they take out a mortgage.\n<\/p>\n
\nOn this front, the Fed has a proposal that would restrict lenders from penalizing risky borrowers who pay loans off early, require lenders to make sure these borrowers set aside money to pay for taxes and insurance and bar lenders from making loans without proof of a borrower\u2019s income. It also would prohibit lenders from engaging in a pattern or practice of lending without considering a borrower\u2019s ability to repay a home loan from sources other than the home\u2019s value. The proposal also would curtail misleading ads for many types of mortgages and bolster financial disclosures to borrowers.\n<\/p>\n
\n\u201cThe combination of stricter regulation and better disclosure will not solve all the problems,\u201d Bernanke said. \u201cWe do believe, however, that this proposal will give consumers much better information,\u201d he added.\n<\/p>\n
\n\u2018Strong uniform oversight\u2019
\nIn addition to this effort, Bernanke said a \u201cstrong uniform oversight of different types of mortgage lenders is critical to avoiding future problems.\u201d\n<\/p>\n
\nThe housing collapse dragged down home values, clobbering borrowers. Many were left with mortgages that exceeded the value of their homes. They were further socked by low introductory rates on their adjustable mortgages, which then reset to higher rates, making their monthly payments difficult or impossible, to afford.\n<\/p>\n
\n JPMorgan, Fed come to rescue of Bear Stearns
\nStocks tumble on bank-liquidity concerns
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\nVote: What will the Fed do next?\n<\/p>\n
\n\u201cFor a number of years, rapid increases in house prices effectively insulated lenders and investors from the effect of weaker underwriting, providing false comfort,\u201d Bernanke said.\n<\/p>\n
\nIn a speech earlier this month, Bernanke urged lenders to help distressed homeowners by lowering the amount of their loans. At the time, Bernanke suggested such a longer-term permanent solution may work better than shorter-term and temporary ones, where the distressed homeowner could find himself in trouble again.\n<\/p>\n
\nTo date, permanent home mortgage modifications that have occurred have typically involved a reduction in the interest rate, while reductions of the principal balance of the loan have been quite rare, he said.<\/p>\n","protected":false},"excerpt":{"rendered":"
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