NY regulator urges more support for homeowners

By Joseph A. Giannone

NEW YORK (Reuters) - The U.S. Treasury Department plan to stabilize banks is a positive step, but the federal government must do more to support individual homeowners, New York Superintendent of Banks Richard Neiman said on Thursday.

"Unfreezing credit markets is vital, but lasting stability needs a solution that also addresses the origins of the problem: the escalating numbers of American families who are losing their most valuable asset -- their homes," Neiman said in a speech to the New York Bankers Association.

Treasury should use its new authority to pursue "mass modifications and other foreclosure prevention solutions," said Neiman, top bank watchdog of the nation's financial services hub. Options include loan guarantees and credit enhancements to help homeowners stay current with their mortgages.

Neiman's comments come at a crucial period as the market meltdown transforms the banking industry and stirs debate about how the system can be better regulated. And while he applauded Treasury's support for the biggest banks, Neiman says more needs to be done to help homeowners.

"We can't lose focus on the increasing foreclosures that gave rise to this situation and also continues to increase and exacerbate the financial crisis," Neiman told Reuters in a telephone interview.

Neiman cited the FDIC's approach to modifying loans at IndyMac, a bank that failed this year, and an $8 billion multi-state "mass modification" agreement with Countrywide Finance, as examples of how this approach could work.

A multi-state group recently reported that efforts to slow the pace of foreclosures are not keeping pace with homeowners falling behind on mortgage payments, he said in the speech.

One option, Neiman said, is for the Treasury to push more lenders and mortgage servicers to participate in the Hope for Homeowners program through the Federal Housing Agency.

Neiman told Reuters that New York and other states have reached out to Treasury since the "Hope Now" alliance was formed to encourage loan servicers to work with homeowners to amend loan agreements to avoid foreclosures.

A multi-state group wants to expand the program but faced resistance from national bank-owned loan servicers.

"We need greater cooperation and emphasis on a more systemic approach to modifications," Neiman said. Getting Treasury's full support for this effort would help such programs keep up with rising levels of homeowner distress.

The recent market turbulence has sparked drastic changes on Wall Street and the formation of a new regulatory system, both illustrated by Goldman Sachs Group Inc's decision to become a bank holding company.

"As the country emerges from this unprecedented period of market strain, financial institutions will be seeking the supervisory and regulatory structure that provides the highest level of confidence," he said.

Last month Goldman and Morgan Stanley, brokers supervised by the Securities and Exchange Commission, converted into bank holding companies supervised by to the Federal Reserve. Goldman surprised many in the market when it applied to charter its banking unit with the state.

State regulators for years have lost clout as banks, which expanded across the country, chose federal oversight. This meant a reduction in fees paid to states.