WASHINGTON - The Federal Reserve and other financial regulators urged mortgage holders Tuesday to work with homeowners facing default to try to work out terms and help "preserve homeownership."
The statement from the Fed and other regulators comes amid concerns that as many as two million US homeowners may face foreclosure as interest rates are reset on adjustable-rate mortgages.
Companies servicing mortgages, including loans that have been bundled into securities, should try to "identify borrowers at risk of default and pursue appropriate loss mitigation strategies designed to preserve homeownership," the statement said.
"Significant numbers of hybrid adjustable-rate mortgages will reset throughout the remainder of this year and next.
"Many subprime and other mortgage loans have been transferred into securitization trusts that are governed by pooling and servicing agreements," it added.
"These agreements may allow servicers to contact borrowers at risk of default, assess whether default is reasonably foreseeable, and, if so, apply loss mitigation strategies designed to achieve sustainable mortgage obligations."
Loan service firms "may have the flexibility to contact borrowers in advance of loan resets," to work out payment arrangements and refer distressed homeowners to counseling services "that may be able to work with all parties to avoid unnecessary foreclosures."
The statement comes from Federal Reserve as well as the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, Office of Thrift Supervision, the National Credit Union Administration and state banking regulators.
It was released after Friday's call by President George W. Bush for new measures to help avert a wave of foreclosures that could displace homeowners and hurt the overall economy.
bur-rl/ksh
09/04/2007 16:07 GMT