Four Years into Housing Crisis, Fed Chairman Ben Bernanke Finally Slams “Costly and Inefficient” Foreclosures
The housing crisis that has seen millions of Americans lose their homes has been going on for more than four years now. And for all that time, we haven’t heard a peep of criticism out of the Federal Reserve. That changed yesterday when Fed Chairman Ben Bernanke released a report in which he argued that foreclosures are not the best way for banks to deal with the housing crisis.
According to the Huffington Post, Bernanke sent a Fed report to Congress in which foreclosures are slammed as “costly and inefficient” because they lead to falling home prices in communities where they occur. 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 report states. ”These deadweight losses compound the losses that households and creditors already bear and can result in further downward pressure on house prices.”
Rather than rush to foreclose, the report urges mortgage lenders to “aggressively” seek loan modifications and other alternatives to foreclosure.
“It should be recognized that other types of loan modifications may be socially beneficial, even if not in the best interest of the lender, because of the costs that foreclosures place on communities, the housing market, and the broader economy,” the report states.
Efforts by the Obama administration to ameliorate the foreclosure crisis have had limited success. Obama’s Home Affordable Modification Program, which has been in effect for nearly two years now, has helped around 700,000 homeowners as of October 2011. This is far less than the 3- 4 million modifications promised by the President.
The GOP presidential hopefuls will very likely disagree with the Fed report. ABC News reports that frontrunner Mitt Romney has advocated letting the foreclosure epidemic “run its course.”
“Let it run its course and hit the bottom,” Romney said. “Allow investors to buy homes, put renters in them, fix the homes up, and let it turn around and come back up.”
Ron Paul, currently running third in the Republican nomination race, agrees. “Government’s supposed to be there to enforce contracts, not to undermine the contracts,” he told Fox News. “So we’re going to give them the loan even if the value of the house has gone way down. This prolongs the necessary correction, the liquidation. This is the reason we’ll be in doldrums for a long time, if we follow this attitude.”
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