In a shift away from its focus on the banking behemoths that have been proven so crucial to the American economy, the Federal Reserve has turned its attentions towards the home foreclosures that were a prime motivator of the credit crisis. Fed Chairman Ben Bernanke said yesterday that his agency would be working to renegotiate mortgages on the verge of foreclosure in an effort to protect homeowners and stem future market falls.
Under the bailout, the government can renegotiate the terms of the mortgages it now owns, which includes stipulations on interest, term, and default status, provided such renegotiation has improved long-term returns for the taxpayer.
Bernanke in the past has pressed for loan-holders to reduce the borrower’s principal, as an “effective means of avoiding delinquency and foreclosure.” Lenders, however, have been reluctant to do so.
Bernanke’s efforts to renegotiate individual mortgages have followed similar sentiment as comments made by Treasury Secretary Tim Geithner and President Barack Obama in recent weeks. The idea has been cast as a populist “homeowner-first” method of using bailout funds, though a decline in home foreclosures would certainly spread its positive effects throughout a financial system so weighted towards mortgage-related securities.