WASHIN
GTON (Bloomberg) – In what he called a "vigorous response" to the national housing crisis, Federal Reserve Chairman Ben Bernanke last week urged lenders to forgive portions of mortgages held by homeowners at risk of defaulting.
"Efforts by both government and private-sector entities to reduce unnecessary foreclosures are helping, but more can, and should, be done," Bernanke said in a speech to bankers in Orlando March 4th. "Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure."
Bernanke's call goes beyond the stance of the Bush administration and previous Fed comments, indicating that he sees housing as a serious threat to the economy that can't be addressed by fiscal or monetary policy alone. The Fed's Feb. 27 report to Congress called for lenders to "pursue prudent loan workouts" through means such as modifying mortgage terms and deferring payments.
The number of U.S. homeowners entering foreclosure rose 75 percent in 2007, with more than 1 percent in some stage of foreclosure during the year, according to RealtyTrac Inc.. For the year, more than 2.2 million default notices, auction notices and bank repossessions were reported on about 1.3 million properties.
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