Foreclosure relief plans, like loan modifications and forbearance continue to be called the best solution to tone down the rising foreclosure crisis.  The government want homeowners to be able to stay in their homes and weather the storms.  Clearly they will need significant participation from the mortgage lenders and investors that hold the mortgage notes. 

Federal Reserve Chairman Ben Bernanke said Thursday that the government must do more to address foreclosures.  Bernanke, speaking at a Fed conference in Washington, D.C., said that beyond just keeping homeowners in their homes, the Fed must continue to focus on foreclosure prevention to help stabilize the housing market and economy as a whole.  “The housing market remains central to the economic and financial challenges that we face,” Bernanke said. “Reducing the number of preventable foreclosures would not only help families stay in their homes, it would confer much wider benefits.”  The Fed chief says a revitalized housing market is key to economic recovery, and that foreclosure prevention deserves increased government attention.

According to Bernanke, about 15% to 20% of borrowers are “underwater” on their mortgage loans, meaning their homes are worth less than they owe. In addition, he said, 20% of sub-prime mortgage loans are seriously delinquent. Bernanke estimated that 2.3 million foreclosures will be initiated in 2008, compared to an average of 1 million before the mortgage meltdown.  Bernanke said the Fed, Treasury Department and Federal Deposit Insurance Corp. have already planned or put in place several measures aimed at stemming foreclosures.   The government has, among other things, cut mortgage rates and announced a plan to buy $500 billion of mortgage loan-backed securities and $100 billion of debt issued by government-sponsored mortgage financers Fannie Mae and Freddie Mac.But Bernanke said more can still be done and outlined several “promising programs.” One was FDIC Chairwoman Sheila Bair’s loan modification plan, which would lower mortgage rates, extend loan terms and offer government insurance against bank losses if borrowers who receive help end up in default anyway.   Another proposal includes strengthening the Federal Housing Administration’s Hope for Homeowners program by reducing the premiums paid by the lender. Bernanke suggested that Congress could give FHA home loans the ability to set premiums on a case-by-case basis rather than an across-the-board approach.