Bernanke remedies fall short, experts say
Bernanke remedies fall short, experts say

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By Richard Mize

Published: March 5, 2008

Federal Reserve Chairman Ben Bernanke's attempt at moral suasion Tuesday hit Oklahoma lenders as redundant and doubtful — and academic, since Oklahoma, so far, is sitting out the national mortgage crisis.

Even with some relief efforts under way by industry and government, foreclosures and late payments on home mortgages are likely to rise "for a while longer,” Bernanke warned.

Bernanke called on lenders to work harder with struggling homeowners — specifically, to unilaterally reduce the outstanding principal on risky mortgages — for the sake of their borrowers, themselves and the wider economy.

He was speaking at an Independent Community Bankers of America conference in Orlando, Fla.

"This is a suggestion. It is not a mandate. He is trying to add to the discussion that we all need to have as to how to help the economy, and the housing market in particular,” said Jim Huntzinger, chief investment officer for BOK Financial Corp. in Oklahoma City.

As for working with struggling borrowers in general, he said, "Lenders are doing that already.”

Huntzinger said the Federal Reserve's recent interest rate cuts and the economic stimulus package that will send tax rebate checks to millions are good as far as they go — but that housing needs to be targeted specifically.

On the other hand, he said, "You want to be very reluctant to give federal program protection to business or individuals who have made poor decisions.”

Trimming the principal on top-heavy loans to give borrowers equity, and the stability that usually comes with it, won't fix anything by itself, said David Feisal, senior vice president of Tulsa-based SpiritBank and immediate past president of the Oklahoma Mortgage Bankers Association.

Cutting the size of outstanding loans wouldn't help borrowers with loans they can't afford if monthly payments weren't also reduced, Feisal said.

Simply reducing principal owed would ignore other problems troubled borrowers face, such as the inability to refinance an adjustable-rate loan that should never have been made in the first place, said Scott Senner, a mortgage consultant with First Commercial Bank in Oklahoma City.

"Let's say you have a home worth $200,000 and a guy with a bad loan owes $210,000. His payment is $1,500 per month with an adjustable-rate loan that will adjust to adjust to $1,700 in six months. Let's say the bank forgives $20,000 of the loan, so now he owes $190,000 on paper,” Senner said. "He, on paper, now has $10,000 in equity.

"That does not solve anything because he still cannot refinance because unless he has good credit and can fully document his income, it does not matter if he has $50,000 in equity, there is not a market for any type of low-documentation or stated-income loan.”

Securities investors would have to be persuaded, too, Feisal said.

"For secondary market transactions, investors holding mortgage-backed securities would also have to agree to accept lesser payments and allow principal reductions,” Feisal said.

Oklahoma has not totally sidestepped the nation's mortgage problems.

"We clearly had homeowners that overdid it some the past few years, but it's not an issue for most of the homeowners and lenders in Oklahoma,” Huntzinger said. "But we have to understand Oklahoma is not the rest of the country.”

However, left unchecked, the nation's mortgage debacle and housing slump could become an Oklahoma problem, cautioned Albert "Kell” Kelly, SpiritBank's chief executive.

"Many say that Oklahoma, because of its energy, aerospace and stable real estate market, is insulated from the national economic condition,” Kelly said this week in the Monday Memo sent to bank employees. "To an extent, this may be correct. However, no state or region of a country can long-term exist in such an environment and eventually be drawn into it.”

Contributing: The Associated Press

Related Topics: Business, Real Estate