Federal Reserve chairman Ben Bernanke today called for a 'vigorous response' to help avert home foreclosures, saying that some banks could do more to help ease the US housing crunch.
Bernanke said banks and lenders have ratcheted up their efforts to help homeowners threatened with foreclosure, but he stressed that more needs to be done, according to remarks prepared for delivery to a meeting of bank executives in Orlando, Florida.
'This situation calls for a vigorous response,' the Fed chairman said, while warning that 'delinquencies and foreclosures likely will continue to rise for a while longer.'
Bernanke said additional measures to help reduce a mounting wave of home foreclosures would not only benefit stressed borrowers and their communities, but also the broader economy.
The Fed chairman told representatives of the Independent Community Bankers of America that in instances where it is not possible to refinance a home loan, the 'next-best solution' may be some type of loss-mitigation arrangement between a lender and a distressed borrower.
'Loss mitigation is made more attractive by the fact that foreclosure costs are often substantial,' he said.
The two-year-long US housing downturn particularly has hit people who were granted sub-prime home loans. Sub-prime loans are granted to people with poor credit and such loans have experienced high default rates, partly as the interest rates on some sub-prime loans have reset to higher rates.
More than one-fifth of the 3.6 million sub-prime adjustable-rate mortgages outstanding were 'seriously delinquent' at the end of 2007, according to Bernanke.
The Fed chief said some banks have told government officials they are reluctant to write down the principal balance owed by a borrower on a home loan, but he said a partial writedown may be preferable to absorbing potentially heftier losses at a later date.
The Fed has aggressively cut US interest rates since September by 225 basis points in a bid to underpin slowing economic momentum which has been partly derailed by the housing downturn. The central bank's federal funds short-term interest rate is presently pegged at 3%.
