Federal Reserve Chairman Ben Bernanke said Tuesday that more needs to be done to help troubled homeowners, and suggested a broader effort to writedown the principal on some troubled loans, according to Dow Jones.

 

"In this environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure," Bernanke said. "Efforts by both government and private-sector entities to reduce unnecessary foreclosures are helping, but more can, and should, be done.”

 

Bernanke said a reduction in principal could increase payoff by reducing default risk, but warned that many servicers and lenders may be wary to modify loans that have been securitized or held by investors.

 

He said it may be in the best interest of investors to embrace such modifications.

 

"A writedown that is sufficient to make borrowers eligible for a new loan would remove the downside risk to investors of additional writedowns or a re-default," he said.

 

If Fannie Mae and Freddie Mac are able to raise more capital, he said they could have a bigger role in dealing with the current problems.

 

"New capital raising by the GSEs, together with congressional action to strengthen the supervision of these companies, would allow Fannie and Freddie to expand significantly the number of new mortgages that they securitize," Bernanke said.

 

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

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