Federal Reserve Chief’s one Recipe Falls Short
Jun 24, 2011

According to Federal Reserve Chief Ben Bernanke, the answer to the still fledgling US housing market is simple: modified loans and faster foreclosures. During the Fed’s recent 2-day policy conference he cited weak employment numbers and job uncertainty as the cause of Americans reluctance to buy. While well intentioned, Bernanke and the Fed’s solution is to do more of what hasn’t been working and ignores other beneficial options for financial market borrowers and lenders.

For starters, the Obama Administration’s loan modification program is serving only as a quick fix to a much larger problem. A New York Times article noted that in March 2010 the number of homeowners who defaulted on their modified loan had doubled from the previous months. Numbers from the same article show that in 2008, a whopping “[s]ixty percent of modifications undertaken by banks in late 2008 were in default a year later.”1 Rather than helping, the government has merely delayed the inevitable and added bad debt to the already hampered tax payer portfolio. What remains are bad loans, bad credit for borrowers, and a housing market plagued by a lack of buyers.

One solution strangely absent from the conversation on Capitol Hill is the use of short sales to stave foreclosure. Short sales provide both parties (borrowers and lenders) a means to sell a distressed property for less than the balance owed on the mortgage. This is an option many banks should be aggressively pushing.

For one, short sales provide banks with a means to recoup losses and prevent foreclosure proceedings. These proceedings are typically accompanied by a myriad of fees and wasted time and expenses. Users of ShortSaleSpeedway™ recognize that a short sale helps avoid these costs and liberate banks and lenders from the responsibility of more bad holdings on their books. For homeowners it is a way to gracefully exit an otherwise difficult situation. Allowing foreclosure to proceed alienates a huge segment of the potential buyer market from considering home ownership again. Giving borrowers a means to free themselves from the burden of a home they cannot afford leaves them in better financial standing moving forward. 

If the US government and Bernanke aim to alleviate the pressure from the housing market in a struggling economy, they need to diversify their approach. Promoting alternative options to lenders and borrowers such as short sales rather than clinging to a modification program that only scratches at the surface is vital to restoring health to a still toxic market.



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