Released: April 18, 2007

Regulators urge cautious approach in foreclosures

Source: Sue Kirchhoff, USA Today

Federal regulators Tuesday urged lenders to be flexible with borrowers who are behind on their home payments, as mortgage-finance giants Fannie Mae (FNM) and Freddie Mac (FRE) laid out initiatives to help strapped consumers refinance into more affordable loans.

Federal Deposit Insurance Corp. Chair Sheila Bair also told the House Financial Services Committee that lenders and Wall Street firms must “share the pain” of mounting losses from borrowers who took out subprime loans. The loans are aimed at borrowers with impaired credit.

“We should hold the (loan) servicers’ and investors’ feet to the fire,” Bair said. “It was clear to investors these were high-risk.”

The activity is part of a growing effort to aid the crisis in the subprime sector, where 13% of mortgages are in delinquency. Nearly 2 million adjustable-rate subprime mortgages will reset at higher rates this year and next, and many borrowers will be unable to keep up. While that’s a small share of the overall mortgage market, the subprime troubles have affected bond and stock prices and credit costs.

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