Federal Reserve Chairman Ben Bernanke said Monday that the Fed is concerned about reported irregularities in foreclosure practices at a number of financial institutions and banking agencies are working together to complete an in depth review of these practices. 

He told attendees at the Symposium for Mortgages and the Future of Housing Finance, "We are looking intensively at the firms' policies, procedures, and internal controls related to foreclosures and seeking to determine whether systematic weaknesses are leading to improper foreclosures. We take violations of proper procedures seriously. We anticipate preliminary results of the review next month. In addition, Federal Reserve staff members and their counterparts at other federal agencies are evaluating the potential effects of these problems on the real estate market and financial institutions."

Bernanke went on to tell the audience that any discussion of housing policy in this country must begin with some recognition of the importance Americans attach to homeownership which, for many, signals a passage into adulthood that coincided with the start of a career and family. High levels of homeownership, he said have been shown to foster greater involvement in school and civic organizations, higher graduation rates, and greater neighborhood stability and society has taken many steps to encourage it. However, he said, it is only good for families and communities when it can be sustained and it was very destructive when dubious mortgage underwriting and products became common and ultimately sparked a foreclosure crisis that led to a larger financial market meltdown.  "With housing markets still weak," Bernanke said, "high levels of mortgage distress may well persist for some time to come."

In response to the fallout from the financial crisis, the Fed has helped stabilize the mortgage market and improve financial conditions more broadly, thus promoting economic recovery. What may be less well known, Bernanke said, is what the Fed has been doing at the local level.

Among the steps that it has taken since the start of the financial crisis was development of a Mortgage Outreach and Research Efforts (MORE) Initiative designed to leverage the knowledge of experts in mortgage markets. MORE has implemented a number of projects designed to communicate best practices and information about innovative programs to improve conditions in those neighborhoods most affected by foreclosures.  Bernanke announced publication of a report issued today by the Fed, Addressing the Impact of the Foreclosure Crisis to communicate best practices and information and to summarize MORE's activities.

The report addresses the Federal Reserve's actions in several areas.

Improving the Communication of Information about Foreclosure Prevention Resources

The Federal Reserve and/or its component banks undertook the following tasks:

  • Served as liaison among the U.S. Departments of Treasury, Labor and the HOPE Now Unemployment Task Force. This led to creation of a web-based tool for homeowners and servicers to document unemployment benefits for the purposes of Federal loan modification programs.
  • Partnered with NeighborWorks to expand the Fed's outreach into the community. This led to a series of case studies on local programs, training programs for non-profits, and several web-based seminars and resource sites as well as a quarterly survey to gather information on loan modifications, bank walk-aways, and emerging issues in low- and moderate-income communities in which 850 organizations now participate.
  • Developed and disseminated information and bank examiner procedures to ensure compliance with the Protecting Tenants at Foreclosure Act.
  • Created a Foreclosure Resource Center on its website for each of the 12 FRS Banks to provide information to local constituents and consumers on foreclosure-related resources.
  • Revised the Foreclosure Mitigation Toolkit which provides detailed steps and information to help localities with foreclosure prevention activities and developed a Foreclosure Recovery Resource Guide to help consumers who have gone through the foreclosure process.
  • Launched the Lawyers Foreclosure Intervention Network to expand the number of attorneys doing pro bono foreclosure mitigation work.

Researching What is Happening on Main Street

  • The Fed watched the early stages of planning and implementation of the Neighborhood Stabilization Program (NSP) and surveyed more than 90 recipients of NSP funds about their experiences. An upcoming report will provide a nationwide examination of the NSP and will help HUD to evaluate its impact going forward.
  • The Boston and Cleveland banks published a volume of research that examines lender-owned real estate and its impact on local communities
  • The New York Fed has been working to make data on mortgage credit conditions available to the public and has established a website to provide information that can help local groups understand the mortgage crisis in their own areas.
  • MORE has acquired, centralized, and made available to its research staff large databases of credit information from major vendors such as CoreLogic. This program, known as RADAR, has greatly increased the ability of Fed staff to produce timely reports and research papers.

Convening Experts to Develop the Right Policy Responses

Bernanke said the Fed has helped many community development partners organize "mega events" that have served thousands of troubled borrowers and have brought together housing advocates, lenders, academics, and key government officials in a number of conferences to discuss issues such as financial literacy and education, foreclosure policies, strategies for managing the impact of vacant properties, and identifying data needs and how to meet them.  

Summary of Foreclosure-Related Papers Produced in Economic Research

The Fed's Economic Research Department has also produced 24 foreclosure-related studies in 2009.  The studies fall into four categories, studies related to:  functioning of housing and mortgage markets; effects of foreclosures and interventions on neighborhoods; mortgage loan modifications and foreclosure prevention; and consumer protection and financial education.

The MORE Report contains a significant amount of information on the literature and other resources related to the issues surrounding foreclosure.  The complete report can be accessed HERE