Federal Reserve Examining Foreclosure Practices; New Report Details Policy Efforts

Federal Reserve Chairman Ben Bernankernsaid Monday that the Fed is concerned about reported irregularities inrnforeclosure practices at a number of financial institutions and bankingrnagencies are working together to complete an in depth review of thesernpractices.  </p

He told attendees at the Symposium for Mortgages and the Future of Housing Finance,rn”We arernlooking intensively at the firms’ policies, procedures, and internal controlsrnrelated to foreclosures and seeking to determine whether systematic weaknessesrnare leading to improper foreclosures. We take violations of proper proceduresrnseriously. We anticipate preliminary results of the review next month. Inrnaddition, Federal Reserve staff members and their counterparts at other federalrnagencies are evaluating the potential effects of these problems on the real estaternmarket and financial institutions.”</p

Bernanke went on to tell the audiencernthat any discussion of housing policy in this country must begin with somernrecognition of the importance Americans attach to homeownership which, forrnmany, signals a passage into adulthood that coincided with the start of arncareer and family. High levels of homeownership, he said have been shown tornfoster greater involvement in school and civic organizations, higher graduationrnrates, and greater neighborhood stability and society has taken many steps tornencourage it. However, he said, it is only good for families and communitiesrnwhen it can be sustained and it was very destructive when dubious mortgagernunderwriting and products became common and ultimately sparked a foreclosurerncrisis that led to a larger financial market meltdown.  “With housing markets still weak,” Bernankernsaid, “high levels of mortgage distress may well persist for some time torncome.” </p

In response to the falloutrnfrom the financial crisis, the Fed has helped stabilize the mortgage market andrnimprove financial conditions more broadly, thus promoting economic recovery.rnWhat may be less well known, Bernanke said, is what the Fed has been doing atrnthe local level. </p

Amongrnthe steps that it has taken since the start of the financial crisis was developmentrnof a Mortgage Outreach and Research Efforts (MORE) Initiative designed tornleverage the knowledge of experts in mortgage markets. MORE has implemented arnnumber of projects designed to communicate best practices and information aboutrninnovative programs to improve conditions in those neighborhoods most affectedrnby foreclosures.  Bernanke announcedrnpublication of a report issued today by the Fed, Addressing the Impact ofrnthe Foreclosure Crisis to communicate best practices and information and tornsummarize MORE’s activities.</p

The report addresses the FederalrnReserve’s actions in several areas.</p

Improving the Communication ofrnInformation about Foreclosure Prevention Resources</p

The Federal Reserve and/or itsrncomponent banks undertook the following tasks:</p<ul class="unIndentedList"<liServedrnas liaison among the U.S. Departments of Treasury, Labor and the HOPE NowrnUnemployment Task Force. This led torncreation of a web-based tool for homeowners and servicers to document unemploymentrnbenefits for the purposes of Federal loan modification programs. </li<liPartneredrnwith NeighborWorks to expand the Fed's outreach into the community. This led to a series of case studies on localrnprograms, training programs for non-profits, and several web-based seminars andrnresource sites as well as a quarterly survey to gather information on loanrnmodifications, bank walk-aways, and emerging issues in low- and moderate-incomerncommunities in which 850 organizations now participate.</li<liDevelopedrnand disseminated information and bank examiner procedures to ensure compliancernwith the Protecting Tenants at Foreclosure Act.</li<liCreatedrna Foreclosure Resource Center on its website for each of the 12 FRS Banks tornprovide information to local constituents and consumers on foreclosure-relatedrnresources.</li<liRevisedrnthe Foreclosure Mitigation Toolkit which provides detailed steps andrninformation to help localities with foreclosure prevention activities andrndeveloped a Foreclosure Recovery Resource Guide to help consumers who have gonernthrough the foreclosure process.</li<liLaunchedrnthe Lawyers Foreclosure Intervention Network to expand the number of attorneysrndoing pro bono foreclosure mitigation work.</li</ul

Researching What is Happening onrnMain Street</p<ul class="unIndentedList"<liThernFed watched the early stages of planning and implementation of the NeighborhoodrnStabilization Program (NSP) and surveyed more than 90 recipients of NSP fundsrnabout their experiences. An upcomingrnreport will provide a nationwide examination of the NSP and will help HUD tornevaluate its impact going forward.</li<liThernBoston and Cleveland banks published a volume of research that examinesrnlender-owned real estate and its impact on local communities</li<liThernNew York Fed has been working to make data on mortgage credit conditionsrnavailable to the public and has established a website to provide informationrnthat can help local groups understand the mortgage crisis in their own areas.</li<liMORErnhas acquired, centralized, and made available to its research staff largerndatabases of credit information from major vendors such as CoreLogic. This program, known as RADAR, has greatlyrnincreased the ability of Fed staff to produce timely reports and researchrnpapers. </li</ul

ConveningrnExperts to Develop the Right Policy Responses</p

Bernanke said the Fed hasrnhelped many community development partners organize “mega events”rnthat have served thousands of troubled borrowers and have brought togetherrnhousing advocates, lenders, academics, and key government officials in a numberrnof conferences to discuss issues such as financialrnliteracy and education, foreclosure policies, strategies for managing thernimpact of vacant properties, and identifying data needs and how to meet them.  </p

Summary of Foreclosure-RelatedrnPapers Produced in Economic Research</p

The Fed’s Economic ResearchrnDepartment has also produced 24 foreclosure-related studies in 2009.  The studies fall into four categories,rnstudies related to:  functioning ofrnhousing and mortgage markets; effects of foreclosures and interventions onrnneighborhoods; mortgage loan modifications and foreclosure prevention; and consumerrnprotection and financial education.</p

The MORE Report contains arnsignificant amount of information on the literature and other resources relatedrnto the issues surrounding foreclosure. rnThe complete report can be accessed HERE

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