U.S. bank regulators, including the Federal Reserve, have asked mortgage lenders to take steps to identify at-risk borrowers and prevent foreclosures. The regulators advised lenders to find ways to refinance loans and even recommended that banks consider reducing the principal owed before foreclosing. "Keeping families in their homes is a matter of great importance to the Federal Reserve," said Fed Governor Randall Kroszner. Gilbert Schwartz, a former associate general counsel at the Fed, said it is "extraordinarily unprecedented" for the regulators to offer such a recommendation in public. "This essentially is a signal to financial institutions that we won't criticize you if you incur expenses or losses for providing assistance to borrowers," he said. The recommendations follow last week's announcement by President Bush that the Federal Housing Administration will assist some borrowers whose mortgage payments are rising. The number of homes being foreclosed upon in July was almost twice last year's figure. Senate Banking Committee Chairman Christopher Dodd calls the regulators' recommendations late and inadequate. "Subprime homeowners deserve loans that are affordable in the long term," he said. "We cannot tolerate short-term modifications that put off the day of reckoning until a time when the press' attention is turned elsewhere."
Sources: MarketWatch I, II, Bloomberg, Reuters
Commentary: Did the Bush-Bernanke Offense Do Anything for the Economy? • But Is Subprime Really the Issue?
Stocks/ETFs to watch: LEND, FMT, CFC. ETFs: KBE
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