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New mortgage products could help, Bernanke
says
By Rex Nutting, MarketWatch
WASHINGTON (MarketWatch) -- The private sector and Congress
should create new, affordable mortgage products that
would help some homeowners refinance their mortgages
and keep their homes, Federal Reserve Chairman Ben Bernanke
suggested in a letter released Wednesday.
In the letter to Sen. Charles Schumer, D-N.Y., Bernanke
repeated that the Fed is closely monitoring markets
and stands ready to act if needed. The Fed issued a statement
with almost identical wording on Aug. 17 after it
cut
the discount lending rate to 5.75%. The letter from
Bernanke was dated Aug. 27 and released by Schumer's
office on
Wednesday.
Calling it a "bullish" letter, bond market
strategist Tony Crescenzi of Miller Tabak said Bernanke
was "very sympathetic to concerns expressed quite
strongly in the financial markets of late."
"
If this tone is repeated on Friday, the conclusion
will be that the Fed will lower the fed funds rate" by
the Sept. 18 meeting of the Federal Open Market Committee,
Crescenzi said. Bernanke is scheduled to give a speech
on housing and housing finance on Friday.
Most economists and market participants expect a
rate cut by the FOMC.
In his letter, Bernanke called for creative thinking
to get the nation out of its subprime mess.
"
It might be worth considering at this juncture whether
the private and public sectors, separately or in collaboration,
could help the situation by developing a broader range
of mortgage products which are appropriate for low-and
moderate-income borrowers, including those seeking to
refinance," Bernanke wrote.
"
Such products could be designed to avoid or mitigate
the risk of payment shock and to be more transparent
with respect to their terms," Bernanke wrote. "They
might also contain features to improve affordability,
such as variable maturities or shared-appreciation provisions
for example."
Congress is considering legislation that would reform
the Federal Housing Administration, which is a
federal agency that provides mortgages to low-income
buyers.
FHA loans have been largely supplanted by subprime
lending from the private-sector. But FHA loans,
with tighter
lending standards and less onerous terms, have
not defaulted at the rates recently seen in subprime
loans.
Under current law, the FHA cannot lend to those
who are behind on their mortgage payments.
Congress is also considering legislation that
would reform oversight of the so-called government-sponsored
entities.
Some have suggested that Fannie and Freddie
be allowed to buy more mortgages beyond their current
maximum as
a way of injecting more liquidity into very tight
money markets. It has also been suggested that
Fannie
and Freddie
be allowed to buy mortgages larger than the $417,000
conforming loan limit. The White House has opposed
any loosening of Fannie and Freddie's buying.
Bernanke said Fannie and Freddie could expand
their lending without changing their portfolio
caps by
selling some of their current holdings in the market.
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