Bernanke calls for foreclosure remedies

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By David M. Dickson

Federal Reserve Chairman Ben S. Bernanke urged the government Thursday to do more to stem the rising tide of home foreclosures, the root cause of the nation's financial crisis.

Mr. Bernanke outlined several proposals that "would require some commitment of public funds" to help struggling homeowners avoid foreclosure.

"Declining house prices, delinquencies and foreclosures and strains in mortgage markets are now symptoms as well as causes of our general financial and economic difficulties," Mr. Bernanke said.

Consumer groups reacted with dismay to reports that the Treasury Department is considering a plan that would encourage banks to offer 4.5 percent mortgages to home buyers -- but not to struggling homeowners seeking to refinance their mortgages.

The Fed chairman, in a speech at a Washington conference on housing finance, directly addressed the refinancing issue by detailing "a few promising options for reducing avoidable foreclosures."

The Fed chairman suggested Congress could appropriate funds to subsidize interest rates for refinancing.

He effectively embraced a plan put forward by Federal Deposit Insurance Corp. Chairwoman Sheila Bair, who has proposed spending $24.4 billion to guarantee some of the losses if any modified loans go sour.

A costlier option would also require the government to share the cost of loan modifications with mortgage servicers.

A fourth "promising proposal" would have the government purchase delinquent mortgages in bulk and then refinance them.

Consumer groups, meanwhile, said the Treasury Department's plan does not go far enough to fix the foreclosure crisis.