Bernanke Urges Action to Slow Foreclosures

Bloomberg is reporting Bernanke Urges Action to Slow Jump in U.S. Home Foreclosures.

Bernanke, in a speech in New York yesterday, also reiterated his call for lenders to forgive portions of mortgages for some struggling homeowners. He said proposals should be "tightly targeted" at borrowers at greatest risk of losing their properties, and avoid providing an incentive for defaults.

"Realistic public and private-sector policies must take into account the fact that traditional foreclosure-avoidance strategies may not always work well in the current environment," Bernanke said in remarks to a Columbia Business School dinner.

My Comment: May not always work well or almost never work well?

Treasury Secretary Henry Paulson met with some of the largest mortgage servicers, including JPMorgan Chase & Co. and Citigroup Inc., on April 23 to consider ways to expand the scope of the Hope Now Alliance, a voluntary industry-led initiative he helped set up to reach more struggling borrowers and help modify their mortgages.

My Comment: I proclaimed Hope Now DOA back in December 2007 in Hope Is Now a Sucker Trap with a followup in "Wedding" Invitations Worth Refusing. It will remain dead. Nothing can put life into that turkey of a plan.

Last week, Federal Deposit Insurance Corp. Chairman Sheila Bair proposed that Congress authorize the Treasury Department to make loans to homeowners to help pay down as much as 20 percent of their mortgage principal.

My Comment: Why stop there? Why not give everyone a free house?

Bernanke also reiterated his call for a stronger role for Fannie Mae and Freddie Mac, the government-chartered companies that are the biggest sources of money for U.S. mortgages, to ease the crisis.

It's an "especially appropriate time" for Fannie Mae and Freddie Mac to "move quickly to raise significant new capital" to aid the housing market, he said.

My Comment: Is Bernanke really that dense? Raising capital to "aid" the housing market is asking for shareholder dilution to give away handouts. Who wants to contribute to that?

"In some cases, when the source of the problem is a decline of the value of the home well below the mortgage's principal balance, the best solution may be a writedown of principal or other permanent modification of the loan," Bernanke said.

One option would be for the FHA to refinance a loan after the lender or investor forgives part of the mortgage, he said.

Bernanke warned that "to be effective, such programs must be tightly targeted to borrowers at the highest risk of foreclosure." Qualification guidelines could be set, such as identifying an amount of debt compared with income, or the extent to which the home value is below the mortgage amount, he indicated.

My Comment: This socialistic proposal is truly sickening. The redeeming feature is it may never get off the ground. Banks are so capital impaired they are not in a position to write down a huge chunk of mortgage debt. There are other non-trivial issues as well, such as no incentive for second lien holders to go along with the plan, and a securitization process that makes getting approvals from all lien holders difficult.

"Finding the right balance -- particularly the need to avoid programs that give borrowers who can make their payments an incentive to default -- is difficult," the Fed chairman said.

My Comment: Finding the right balance is not difficult, it's impossible. It's a fool's mission that should not even be on the table for discussion.

Geographic Variation in Loan Mortgage Performance

Ben Bernanke gave a speech on May 5, on Mortgage Delinquencies and Foreclosures.

As my listeners know, conditions in mortgage markets remain quite difficult, and mortgage delinquencies have climbed steeply. The sharpest increases have been among subprime mortgages, particularly those with adjustable interest rates: About one quarter of subprime adjustable-rate mortgages are currently 90 days or more delinquent or in foreclosure.1 Delinquency rates also have increased in the prime and near-prime segments of the mortgage market, although not nearly so much as in the subprime sector. As a consequence of rising delinquencies, foreclosure proceedings were initiated on some 1.5 million U.S. homes during 2007, up 53 percent from 2006, and the rate of foreclosure starts looks likely to be yet higher in 2008.

On the principle that a picture is worth a thousand words, Federal Reserve staff, using detailed, county-by-county information on mortgage performance, have developed a series of "heat maps," which summarize the incidence of serious mortgage delinquencies across the nation as well as some of the key drivers of loan performance. As the examples will make clear, the figures use warmer colors--orange and red--to show counties for which the factor being considered has a higher value or change. Lower values or changes are indicated by cooler colors--shades of green--and yellows indicate areas where the factor under consideration has a moderate value or change.

Mortgage Delinquency Levels By County



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Change In Mortgage Delinquency Levels By County



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Change In House Price Index By County



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Non-Owner-Occupied Purchases By County



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Figure 5 is way understated because it is using OFHEO data not Case-Shiller Data. See
Case-Shiller Shows Steep Declines In Home Prices for more information.

Figure 6 is understated by the amount of flipper liars saying they intended to live in the house to get a better mortgage rate.

Comments

[fxtrader07]

another well written and really enjoyable and informative piece by you. thanks for that.
I especially liked that phrase by bernanke:

"to be effective, such programs must be tightly targeted to borrowers at the highest risk of foreclosure." Qualification guidelines could be set, such as identifying an amount of debt compared with income, or the extent to which the home value is below the mortgage amount, he indicated."

my comment (in addition to yours): yeah, right. the dumbest and most reckless borrowers who never could afford their mortgages anyway should be bailed out first and foremost.
paid for by the prudent people who live within their means. populism of the worst kind which will ultimately destroy the entire society

[iThinkBig]

Why are women always socialists? Gawd! Try dealing with the marital masters in New Hampshire, all women all socialists. They make horrific central planners. Look at States or any government they get into and manage. You can't make something be a reality just because you 'FEEEEEEEL' it should BE the reality. I am talking about Sheila Bair. Get rid of her! Lastly, no more bailouts, let the house of cards fall and Americans feel one big pinch and rebuild then bleeding the responsible out in slow motion to death over 3-4 years. This program is beyond socialist, it is pure communism.

Wait and see how many defaults and foreclosures occur if they do this. Why would I pay my mortgage when I would now know that those at the top will just reallocate my hard work and life to the greedy, stupid and irresponsible any time I got ahead?

THINK PEOPLE: Create a competing energy product for big oil, create millions of jobs and a product the global consumer can use. This would also deflate the commodities bubble and pour investment back into the U.S. (especially if backed by Treasury) and this would fix our banking system in the process.

[icandoitdon]

if this isn't socialist what is it?

if crap like this goes through, every homeowner with a mortgage should stop paying. make the bastards sweat.

perhaps karl marx was right....capitalism sows the seeds of its own destruction.

[pharma]

Excellent article.

Why will anybody in a sound mind pay their mortgages? There are absolutely no reason for it!

PS
People do not understand the meaning of communism. Stalin stated: Everyone MUST contribute to the society accordingly to their abilities and everybody must be paid compensated accordingly their contribution.

This is perfect and I agree with it.
But there was one BIG problem: it were the Communist Party bureaucrats who developed and implemented the standards for required contributions and compensations. If someone did not meed the required contribution requirements, he and his family were sent directly to an extermination camp!