Federal Reserve Chairman Ben Bernanke called Tuesday for additional action to prevent more distressed homeowners from falling into foreclosure.There are foreclosures that occur because something bad happens to people, they lose their job, lose a spouse, have major medical issues and then there are foreclosures that are happening because people got in over their heads. Assistance could reasonably be available for the first group and shouldn't be available for the second group.
"This situation calls for a vigorous response," Bernanke said in a speech to a banking group meeting in Orlando, Fla.
Even with some relief efforts under way by industry and government, foreclosures and late payments on home mortgages are likely to rise "for a while longer," Bernanke warned.
Rising foreclosures threaten to worsen the problems in the housing market and for the national economy, which many fear is on the verge of a recession or in one already.
"Reducing the rate of preventable foreclosures would promote economic stability for households, neighborhoods and the nation as a whole," Bernanke said. "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 Fed chief said.
One of the suggestions Bernanke talked about was writing down the principal of the loan, something lenders are understandably loath to do. But one of the reasons, if not a driving reason, for high property prices and thus steep mortgage payments, is the inflated property prices caused by restrictive zoning laws and other regulatory burdens. Ease those burdens and you will ease the mortgage and foreclosure crunch--possibly by allowing lenders to write down the principal of the loan because property values will return to normal.
Other plans, like the one called for by Maryland Governor Martin O'Malley (D) strikes me as simply a give way of taxpayer money.