Federal Reserve Board Chairman Ben Bernanke announced Monday that federal regulators are now investigating whether banks have engaged in practices that have led to systemic problems in the foreclosure process. The Fed is also looking into what effect foreclosures and vacant properties are having on communities. Bernanke said he expects preliminary results next week.
The problems with foreclosures, now called “Foreclosure-Gate,” have already resulted in investigations by attorneys general or regulators in all fifty states as well as a criminal investigation by the FBI, numerous private lawsuits and probes by the Treasury Department and other federal agencies.
Fed Chief Touts Sustainable Home Ownership, Questions Current System
Bernanke, speaking at an October 25 housing finance conference, said that home ownership has a tradition of high cultural importance in the U.S. That tradition has been bolstered by government incentives like the mortgage interest deduction and mortgage guarantee programs through Fannie Mae and Freddie Mac.
As a result, the home ownership rate in the U.S. grew from 45 percent in 1940 to its high of 69 percent just before the housing bubble burst in 2004.
He also pointed out that home ownership encourages community involvement and neighborhood stability and is tied to other societal goods such as high school graduation rates.
On the other hand, the high importance Americans place on home ownership has meant that the out-of-control lending during the housing boom, followed by the real estate downturn and foreclosure crisis have hit especially hard.
“Now, more than 20 percent of borrowers owe more than their home is worth and an additional 33 percent have equity cushions of 10 percent or less, putting them at risk should house prices decline much further,” he told the audience. “With housing markets still weak, high levels of mortgage distress may well persist for some time to come.”
Home ownership “is only good for families and communities if it can be sustained,” he pointed out.
Fed Activity Also Includes Foreclosure Prevention Programs
In addition to its role watching over the economy and investigating systemic issues that affect the nation, Bernanke said the Fed also sponsors local efforts to prevent foreclosures.
One of its priorities is promoting fair and equal access to credit and banking services. Another is holding foreclosure prevention “mega events.” He also touted the Fed’s efforts to help unemployed homeowners keep their homes by allowing them to list unemployment benefits as income when applying for federal mortgage assistance programs.
Source: Courthouse News Service, “Fed Is Probing Foreclosure Practices, Bernanke Says,” Avery Fellow, October 25, 2010