More than four years into the housing crisis, and after millions of Americans have lost their homes, Federal Reserve Chairman Ben Bernanke is finally taking a stand.
Bernanke sent a Federal Reserve paper to the leaders of the House of Representatives' Committee on Financial Services arguing that relying heavily on foreclosures to deal with mortgage borrowers that can't meet their obligations is "costly and inefficient" for the housing market because they can lead to deteriorating homes and weigh on the property values in the surrounding community.
Instead, the paper encourages lenders to "aggressively" pursue loan modifications and for servicers to be given more incentives to seek alternatives to foreclosure.
Foreclosures "can result in 'deadweight losses,' or costs that do not benefit anyone, including the neglect and deterioration of properties that often sit vacant for months (or even years) and the associated negative effects on neighborhoods," the paper said. "These deadweight losses compound the losses that households and creditors already bear and can result in further downward pressure on house prices."
Read more...Foreclosure Not Best Solution To Housing Crisis: Federal Reserve Report
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