The chairman of the Federal Reserve Board addressed a number of mortgage issues including principal forgiveness and the potential servicer settlement. He also discussed how the ailing housing market has curtailed the central bank’s ability to bolster the economy.
Fed Chairman Ben Bernanke fielded questions from reporters on Wednesday.
In response to a question from an Associated Press reporter, he noted that Fed policies have been less potent because of a weak housing market.
“Part of our transmission mechanism is through lower interest rates,” Bernanke said. “It affects refinancing, it affects sales and purchases as well. And so, in addition to that, as bank supervisors, we have considerable interest in servicing, in loan modifications, in delinquencies and all the aspects of mortgage lending.
“So, we have a considerable interest in this area.”
Bernanke said that a variety of views exist at the Fed about principal forgiveness and the bank has no official position. He did acknowledge, however, that principal reduction could help reduce delinquency.
“It certainly has some advantages,” he explained, “but a lot depends on how it’s structured, and a lot depends on what the alternatives are that you’re considering.”
But the down side to such loan modifications is that no program will eliminate the $700 billion in negative U.S. equity.
The Fed chairman commented on the settlement negotiations between mortgage servicers and state attorneys general.
“I think the issue then becomes, if we have $20 or $25 billion or whatever the number may end up being in this settlement, what is the most cost-effective way to help as many people as possible,” Bernanke stated. “And I think that’s an ongoing debate.”
