The Fed Asks Loan Servicers to Help Prevent Foreclosures

On Tuesday, the Federal Reserve, as well as other banking regulators issued a statement urging mortgage loan servicing companies to help homeowners that are in dangers of losing their home to foreclosures if they continue to default on their mortgages. While it is not mandatory for loan companies to now help, industry regulators hope that those that collect payments on home loans would agree to help out. Loan servicers have the ability under tax and accounting guidelines to assist deserving homeowners. As more and more borrowers with hybrid and subprime mortgages are facing foreclosures as their interest rates reset and the rates rise, it is important that the mortgage industry work with homeowners that are facing higher monthly payments that make their mortgage unaffordable. President Bush announced on Friday that the government was working to put forth proposals to prevent expected defaults over the next two years while the housing industry weathers a major downturn. The Federal Reserve’s request of the banking agencies to help out stressed borrowers followed the president’s announcement. Both efforts by Bush and by the loan industry is an attempt to handle the increasing concern as more borrowers than ever worry about losing their homes if they fail to make their mortgage payments. By the end of next year, about 2 million adjustable rate mortgages are scheduled to reset. These ARMs had low “teaser rates” in the beginning that will raise to much higher rates-sometime even doubling or tripling the monthly mortgage payment. The foreclosures rate has been rising throughout the year as homeowners who had bad credit histories were given loans. The downfall of the mortgage industry as others worried that it will affect other aspects of the economy as well.  

The new suggestions from the Fed include extending the home loan, or simply adding the payments missed to the end of the loan. The banking company also has the ability to modify the loan by changing the interest rate, or changing the loan from an adjustable mortgage to a fixed mortgage, where the interest rates stay the same.