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Wall Street Roundup

Fed chief calls for mortgage options

August 30, 2007|From Times Wire Services

Federal Reserve Chairman Ben S. Bernanke wants policymakers to look for ways to encourage a wider range of mortgages geared for low-income and other borrowers who have been hard hit by the housing slump and credit crunch.

Bernanke, in a letter to Sen. Charles E. Schumer (D-N.Y.) that was released Wednesday, also said the Fed was "prepared to act as needed" to ensure that the spreading credit problems that have rocked Wall Street in recent weeks don't hurt the economy.

Foreclosure and late payments have surged especially for sub-prime borrowers with blemished credit histories or low incomes. Higher interest rates and weak home values have made it impossible for some to pay or to keep up with their monthly mortgage payments.

Bernanke said the development of "a broader range of mortgage products which are appropriate for low- and moderate-income borrowers, including those seeking to refinance" might help the situation.

Those new mortgages could include "variable maturities or shared-appreciation provisions for example," he wrote.

Some mortgage experts have suggested that sub-prime borrowers could save their homes with mortgages that mature in 40 or even 50 years rather than the traditional 30-year mortgage.

Under shared-appreciation provisions, mortgage lenders and borrowers both would benefit from any increase in the value of a home over time.

Mortgage foreclosures and late payments are expected to worsen in the next year and a half as low "teaser" rates that lured in borrowers reset to higher rates.

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