http://www.bloomberg.com/apps/news?pid=20601087&sid=a35xUvirdVv8&refer=home ``Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure.'' Things must be pretty horrific for him to even suggest such a thing.
The commercial banks have no money http://www.federalreserve.gov/releases/h3/Current/ Thatâs why he went to the independent banks in Orlando hahahah.
Maybe he is saying "you guys screwed the pooch by giving these people loans in the first place, so now try to help them out before they foreclose" I went in for a mortgage a few years ago and I had a number in my head of what i wanted to spend. I wanted to get pre-approved to make the buying process quicker. They approved me for a loan where the mortgage alone was 4 times what I had in mind. I told him "you got to be kidding", he said No, I have great credit and would be able to swing it. I believe i would not have been able to survive if i had accepted the highest loan they qualified me for. The taxes, insurance, etc on top of the loan would leave me less than 1 weeks money to buy everything else in my life like food, clothes, vehicles, etc... They were looking for the quick score and then they flip my mortgage to someone else and its off their books. While I believe the people that accepted these mortgages should be held responsible for their choices. i also believe that the banks and morgage brokers were in a position to know better and they need to be accountable too. i guarantee you if they were charged back for making a loan that failed over the course of the lifetime of that loan, they would never have written ANY shady or subprime loans. But thats just my opinion and I could be wrong.
One of the suggestions Bernanke made was for mortgage and other financial companies to reduce the amount of the loan to provide relief to a struggling owner. "Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure," Bernanke said. With low or negative equity in their home, a stressed borrower has less ability -- because there is no home equity to tap -- and less financial incentive to try to remain in the home, he said. Bernanke acknowledged this idea might be a tough sell to lenders. Lenders, he said, are reluctant to write down principal. "They said that if they were to write down the principal and house prices were to fall further, they could feel pressured to write down principal again," Bernanke said. Still, Bernanke suggested such longer-term permanent solutions may work better than shorter-term and temporary ones, where the distressed homeowner could find himself in trouble again. "When the mortgage is `under water' a reduction in principal may increase the expected payoff by reducing the risk of default and foreclosure," he said. To 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. "Measures that lead to a sustainable outcome are to be preferred to temporary palliatives, which may only put off foreclosure and perhaps increase its ultimate costs," Bernanke said. http://biz.yahoo.com/ap/080304/bernanke_mortgage_crisis.html So, I guess Bernanke reads Roubini too. Amazing. I am stunned there hasn't been more of a reaction to this. Think it needs some time to digest. I can't think of worse news. Any other comments?
All that was needed was federal regulation which prohibited the mortgage writer on conforming loans from disposing of the loan for 5 years. Qualifications and loan underwriting would have been entirely different. As things stand now, there are plenty of mortgage holders in one form or another who are leveraged and stuck... bankruptcy looms for them unless there is some kind of save... and they're desperate.
And many fools think the bottom is in, the bottom is VERY FAR AWAY , real estate is going to fall another 10-15% and most likely another 20-30% over the next 3-4 years. They will do anything to stop it from falling, surprised they didnt step in to slow it down when housing prices were rising 20-30% a year. See what GREED does......
There's actually a bankruptcy concept that is right on point to the whole housing mess and it's college or law school level simple: Creditors are divided into secured (e.g. mortgage or other liens) or unsecured (e.g. credit card, your bill at the cleaners). BUT, if you claim you are secured, your security interest is only up to the value of the collateral and everything over that is unsecured and potentially dischargeable. The problem is the part about debtors being able to avoid the overage - which has been so watered down by this corrupt Congress.
bernanke may be saying the fed can be of no more help other than a few more cuts. the bankers have to laughing at this one.