Bernanke backs new mortgage products
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In a letter to Sen. Charles Schumer written Monday and released today, Fed Chairman Ben Bernanke suggests ways Congress can encourage new mortgage products to help homeowners at risk of foreclosure. We’re going to ask for very specific feedback at the bottom of the post, but please, read on:
Here’s the AP lead: ‘Federal Reserve Chairman Ben Bernanke is suggesting that policymakers look for ways to encourage a wider range of mortgages geared for low income and other borrowers who have been hard hit by the housing slump and credit crunch.’
Here’s more: ‘’’The Congress might wish to consider FHA reforms that allow the agency more flexibility to design new products and to collaborate with the private sector in facilitating the refinancing of creditworthy subprime borrowers facing large resets,’ Bernanke said.’
Here’s how Reuters is covering it: ‘Regulators need not lift investment caps on Fannie Mae and Freddie Mac in order to rescue troubled subprime borrowers, but new loan products could help some avoid foreclosure, Federal Reserve Chairman Ben Bernanke said in a letter released on Wednesday.’
Two-part question: Part One: What kind of new product is Bernanke encouraging here? Any guesses?
Part Two: OK, here’s a scenario: Let’s say the borrower has a 2/28 mortgage, 2006 vintage, for $400,000. How could you restructure that loan so that the borrower pays just a little bit more than the ‘teaser’ rate, and still pays off the loan? Can it be done? What are the options for the borrower? Or, are we barking up the wrong tree? Is Bernanke suggesting (‘collaborate with the private sector’) that banks or lenders forgive part of the loan if the government helps refinance it?
You can also skip the complicated stuff and just tell us what you think of Bernanke’s ideas.
Hat tip: Investorguy