Mar
4
Bernanke Speaks
March 4, 2008 |
Fed Chairman Ben Bernanke
The current real estate mortgage meltdown - fed by the american dream to own a home, unscrupulous lenders selling loans with many buyers not fully understanding or having the mortgage loan terms explained to them. Mortgage rates resetting, option ARMs, paid too much for the home and now simply cannot make the payment.
- Late last year the Hope Now Alliance was in the news -
- Bush signed the Mortgage Debt Forgiveness Act -
- We have had several interest rate reductions which has slowed down the accelerated payments home owners in the adjustable rate mortgage were getting squeezed with the payments climbing each month as new interest was added to the loan.
Now Bernanke is suggesting banks reduce the principal of some loans, quoting from the speech today “Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure.”
Write-downs* are something that no banker wants to do … however faced with the current number of foreclosures rising at 50% - 1-1/2 million last year, and foreclosure starts are on track to rise further this year. More from the Bernanke, “We want to help borrowers in trouble, but we do not want borrowers who have avoided problems through responsible financial management to feel that they are being unfairly penalized.”
* A principal reduction also known as a write-down - a write-down is reducing the book value of an asset because it is overvalued compared to the market value.
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