Bernanke Urges Flexibility in Mortgage Regulation

NEW YORK -- Ben S. Bernanke, the chairman of the Federal Reserve, urged Congress on Monday to allow federal agencies more leeway in overseeing the ailing mortgage industry, emphasizing that the causes of the current foreclosure crisis were more difficult to address than those in the past, The New York Times reported.

“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 at a Columbia Business School event at the Waldorf-Astoria in Midtown Manhattan, according to the paper.

In a 10-page speech, Bernanke said that some regions of the country -- including California, Florida, Colorado and parts of the Midwest -- have experienced sharp increases in the number of homeowners who are delinquent on their mortgages, despite data that does not reveal the classic causes of foreclosures, like higher unemployment rates, according to the paper.

Instead, much of the problem can be attributed to a decline in home prices, which, Bernanke said, can “reduce the ability and incentive of homeowners, particularly those under financial stress for other reasons, to retain their homes,” according to the paper

Meanwhile, the Treasury Department, in an effort to make its main program for helping home borrowers hit by the subprime mess more effective, plans to step up pressure on mortgage companies, The Wall Street Journal reported Tuesday.

Officials have called a six-hour meeting Tuesday with banking officials to discuss adopting a uniform, but voluntary, set of criteria to speed the time it takes qualified borrowers to modify mortgages they can't afford. Officials also want to make the modification process more consistent across institutions, the paper reported.

About 10 lenders will attend, including Countrywide Financial Corp., Bank of America Corp., Citigroup Inc. and J.P. Morgan Chase & Co. Officials from mortgage-finance giants Fannie Mae and Freddie Mac will attend part of the meeting, the paper reported.

As for Fannie Mae, on Tuesday it reported losses of $2.2 billion in the first quarter and said it would cut its dividend and raise $6 billion in new capital, with expectations that the housing slump will persist into next year, The Associated Press reported.

Home prices fell faster in the first quarter than Fannie Mae had expected, the government-sponsored company said, and it will open a $4 billion share offering immediately, with the remainder being offered in the "very near future," the AP reported

Following the stock sale, Fannie Mae's federal regulator, the Office of Federal Housing Enterprise Oversight, will cut the capital surplus cushion the company has to maintain by 5 percentage points to 15 percent, with another five-point cut in September, provided there is "no material adverse change" in the company's regulatory compliance, the AP reported.

-- NYSSCPA.org News Staff

Posted on 5/6/08