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.My Comment: May not always work well or almost never work well?
"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.
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.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?
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.
"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.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.
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.
"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.Mortgage Delinquency Levels By County
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.
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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.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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