Looks like we now have the Fed, the FDIC and Moe on the same loan modification and mortgage servicing page.
Today I watched Ben Bernanke on CNBC and listened in a trance as he said that mortgage servicers are incapable of coping with the crisis on their own and called for action for addressing the apparent market failure where lenders aren’t modifying mortgages even in cases where it’s in their own economic interest to do so.
OK, let me repeat this for everyone just in case you didn’t get it, “lenders aren’t modifying mortgages even in cases where it’s in their own economic interest to do so.” May Day, May Day, we’ve got a problem here Ben.
Yes, the Fed chief, Mr. Bernanke, finally is publicly saying we have a major problem with mortgage servicers and intervention is needed now. He also concurred with the FDIC’s Sheila Bair that servicers need financial incentives to offer loan modifications.
Amen to the fact that Bernanke feels like me, that home mortgage principles would have to be written down in order to make mortgage payments more affordable and keep people in their homes.
Foreclosures may begin on 2.25 million homes this year, more than double the pace before the financial crisis, he said. Estimates show as many as 20 percent of borrowers may now be “under water,” where their mortgage is bigger than the price of their home, Bernanke said.
“Despite good-faith efforts by both the private and public sectors, the foreclosure rate remains too high, with adverse consequences for both those directly involved and for the broader economy,” Bernanke said.
Market Failure
Some foreclosures are happening “even in cases in which the narrow economic interests of the lender would appear to be better served through modification of the mortgage,” Bernanke said. That is partly the result of packaging loans as securities for sale to investors, where there’s the risk of lawsuits and a lack of “clear guidance,” he said.
Mr. Bernanke also outlined a series of additional steps the government can take.
One would be to increase participation in the Hope for Homeowners program, which puts delinquent borrowers into new Federal Housing Administration-insured mortgages.
To bring down the rate borrowers pay under that program, Treasury could purchase Ginnie Mae securities that are tied to interest rates that borrowers pay, Mr. Bernanke said. “Alternatively, Congress could decide to subsidize the rate,” he added.
Mr. Bernanke also said a “promising proposal” would be for the government to “purchase delinquent or at-risk mortgages in bulk and then refinance them into the (Hope for Homeowners) or another FHA program.”
Mr. Bernanke estimated that lenders are on track to initiate 2.25 million foreclosure proceedings this year, more than double the rate before the crisis. He also cited estimates showing as many as 15% to 20% mortgages may be “under water,” meaning more is owed on the house than it is worth.
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