TEXT-Bernanke's speech to community bankers
Federal Reserve System Efforts
I would like to comment briefly on Federal Reserve System efforts to reduce preventable foreclosures and their costs on borrowers and communities. The Federal Reserve can help by leveraging three important strengths: our analytical and data resources; our national presence; and our history of working closely with lenders, community groups, and other local stakeholders. A major thrust of our efforts is sharing relevant and timely data analysis of mortgage delinquencies with community groups and policymakers to efficiently target resources to areas most in need. For example, we recently assisted NeighborWorks America in identifying regions and neighborhoods that are at risk of higher rates of foreclosure and could benefit from increased mortgage counseling capacity. On the basis of this analysis, NeighborWorks recently distributed $130 million in newly granted funds from Congress to thirty-two state housing finance agencies, eighty-two community-based NeighborWorks organizations, and sixteen counseling intermediaries around the country.
The Federal Reserve System also is supporting efforts to reach troubled borrowers and to raise awareness in communities about ways to prevent foreclosures. Since July, the community affairs groups across the Federal Reserve System have sponsored or cosponsored more than fifty events related to foreclosures, reaching more than 4,000 attendees including lenders, counselors, community development specialists, and policymakers.
We are also concerned about the challenges of neighborhoods that have seen large increases in foreclosures and vacant properties and have begun to work with policymakers, lenders (including community banks) and community groups to address these problems. In particular, we have undertaken a joint effort with NeighborWorks America to help communities develop strategies for neighborhood stabilization. Conclusion
Reducing the rate of preventable foreclosures would promote economic stability for households, neighborhoods, and the nation as a whole. Although lenders and servicers have scaled up their efforts and adopted a wider variety of loss-mitigation techniques, more can, and should, be done. The fact that many troubled borrowers have little or no equity suggests that greater use of principal writedowns or short payoffs, perhaps with shared appreciation features, would be in the best interest of both borrowers and lenders. This approach would be facilitated by allowing the FHA the flexibility to offer refinancing products to more borrowers.
Ultimately, though, real relief for the mortgage market requires stabilization, and then recovery, in the nation's housing sector. Modernization of the FHA would be of help on this front as well. I am sure that the FHA and the Department of Housing and Urban Development, given the appropriate powers by the Congress, will make every effort to expand their operations and to help improve the functioning of the market for home-purchase mortgages. For community bankers, FHA modernization and expansion would provide an important opportunity--of which I urge you to take advantage--to better serve your customers and community.
The government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, likewise could do a great deal to address the current problems in housing and the mortgage market. New capital-raising by the GSEs, together with congressional action to strengthen the supervision of these companies, would allow Fannie and Freddie to expand significantly the number of new mortgages that they securitize. With few alternative mortgage channels available today, such action would be highly beneficial to the economy. I urge the Congress and the GSEs to take the steps necessary to allow more potential homebuyers access to mortgage credit at reasonable terms."
