Fed: Servicers Slow to Add Capacity for Loan Mods

Federal Reserve chairman Ben Bernanke criticized residential loan servicers for being slow to add "capacity" to their loan modification programs. Speaking at a Fed conference on housing, Mr. Bernanke said he also backed the idea of giving cash incentives to servicers that engage in loan restructurings. He also supports a reduction in the rate being charged to consumers who try to restructure their loans through the Federal Housing Administration's 'Hope for Homeowners' modification program. "At present, this rate is expected to be quite high, roughly 8%, in part because it is tied to the demand for the relatively illiquid securities issued by Ginnie Mae to fund the program," he said. "To bring down this rate, the Treasury could exercise its authority to purchase these securities, with the Congress providing the appropriate increase in the debt ceiling to accommodate those purchases. Alternatively, the Congress could decide to subsidize the rate." The H4H program has received little usage in the mortgage industry. The Fed chairman nixed the idea of a government-funded insurance program to offer price supports on home values.