ORLANDO, Fla.–Speaking here before attendees of the Independent Community Bankers of America yesterday, Federal Reserve Chairman Ben Bernanke urged lenders to offer more relief to troubled homeowners.
"Delinquencies and foreclosures likely will continue to rise for a while longer, for several reasons," Bernanke said.
For the first time, he broached the idea of reducing the amount owed on a loan, stating, "Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure." Positing that the cost of mounting foreclosures would overwhelm present efforts like the temporary freezing of rates and loan work-outs, Bernanke said, they might only put off the problem rather than solve it.
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Neighborhood clusters of foreclosed homes reduce home values further and the downward spiral picks up speed, as Bernanke noted that more than half of the foreclosure starts in 2007 (1.5 million) were on subprime mortgages, making more decisive action necessary.
Details in the next issue of Credit Union Times.
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