Federal Reserve Chairman Ben S. Bernanke told a gathering of members of the Independent Community of Bankers of America (ICBA) today that they need to do more to help distressed homeowners, especially those facing foreclosure. Bernanke told the audience of ICBA-affiliated bankers that it’s time for a “vigorous response” to help stem the tide of rising home foreclosures, essentially saying that banks and lenders could do a heck of lot more to help ease the U.S. housing crisis and keep more American’s in their homes.

Bernanke’s remarks, which can be read in their entirety here, are very much in line with what Flipping Frenzy Guest Blogger Larry Rubinoff asked here on FlippingFrenzy.com this past weekend… namely, what’s the point in forcing people out of their homes when they can afford to pay their pre-ARM payments.

At the end of the day, if the bankers chose to respond vigorously, more of us will win. If they do not, Bernanke’s 3,175-word speech will have been for not.

On the heels of news from the Mortgage Bankers Associations that the the delinquency rate for mortgage loans now sits at its highest since 1986, President Bush today announced what the White House is spinning as a major initiative to “limit the rise in foreclosures that would have negative consequences for our economy” (said differently, the President’s plan targets the estimated 1.2 million American homeowners who can afford their mortgages at the current rate, but not at the higher interest rate that their adjustable-rate loans are about to reset to).

First up on the President’s plan: “FHA Secure.” A program that gives the FHA greater flexibility to offset refinancing to homeowners — to offer refinancing to homeowners who have good credit histories but cannot afford their current payments. In just three months, according to the President, the FHA has helped more than 35,000 people refinance. And in the coming year, the FHA expects this program to help more than 300,000 families.

Next up: “HOPE NOW Alliance.” in August, President Bush asked members of his Cabinet to work with trade associations, lenders, loan servicers, mortgage counselors and investors (including American Financial Services Association, American Securitization Forum, Assurant, Inc., Bank of America, CCCS Atlanta, Inc., Citigroup Inc., Consumer Bankers Association, Consumer Mortgage Coalition, Countrywide Financial Corporation, Fannie Mae, The Financial Services Roundtable, First Horizon National Corporation, Freddie Mac, GMAC ResCap, Homeownership Preservation Foundation, Housing Partnership Network, The Housing Policy Council, HSBC North America Holdings, Inc., JPMorgan Chase & Co, National City, NeighborWorks America, Mortgage Bankers Association, Option One Mortgage, PMI Mortgage Insurance Co., Securities Industry and Financial Markets Association, State Farm Insurance Companies, SunTrust Mortgage, Inc., Washington Mutual, Inc., Wells Fargo & Company.) on an initiative to help struggling homeowners find a way to refinance. HOPE NOW, according to the President, is an example of government bringing together members of the private sector to voluntarily address a national challenge — without taxpayer subsidies and without government mandates.

According to the President, representatives of the HOPE NOW Alliance plan to help homeowners who will not be able to make the higher payments on their sub-prime loan once the interest rates goes up — but only those who can at least afford the current, starter rate. HOPE NOW members have agreed on a set of industry-wide standards to provide relief to these borrowers in one of three ways:

1. By refinancing an existing loan into a new private mortgage
2. By moving them into an FHA Secure loan
3. Or by freezing their current interest rate for five years

Lenders, President Bush says, are already refinancing and modifying mortgages on a case-by-case basis. With this systematic approach, HOPE NOW says it will be able to help large groups of homeowners all at once. This will bring relief to more homeowners more quickly, says President Bush. The HOPE NOW Alliance estimates there are up to 1.2 million American homeowners who could be eligible for their assistance.

Finally, according to the President, the federal government is taking several regulatory actions to make the mortgage industry more transparent, reliable and fair (sorry, no catchy name for this program). President Bush says later this month, the Federal Reserve intends to announce stronger lending standards that will help protect borrowers. At the same time, HUD and federal banking regulators said to be taking steps to improve disclosure requirements — so that homeowners can be confident they are receiving complete, accurate and understandable information about their mortgages.

As the federal government take these steps, President Bush indicated that the Department of Justice will continue to pursue fraud in the banking and housing industries — so we can help ensure that those who defraud American consumers face justice.

So there you have it. This is how President Bush and members of his Cabinet intend to stop foreclosure-related bleeding in the housing market and save our current economy. While homeowners with good credit scores are going to be able to refinance their loans (with some lenders reportedly ready to waive prepayment penalties), the millions upon millions of Americans with poor credit — regardless of why the have a low credit score — and many of those American’s already facing foreclosure, are most likely going to be bounced to the curb.

While response to the President’s plan is sure to be swift, you yourself may be wondering how all of this impacts you (that is, if you are currently facing foreclosure or rent a property that is facing the same). For more on that, I am going to quote an often reliable source, BusinessWeek:

Can you get your mortgage payments lowered because of the bailout?

It depends. If you’ve got an adjustable-rate mortgage, you may qualify under certain conditions. If you’ve got a standard mortgage with a fixed interest rate, you’re not affected.

Which adjustable-rate mortgage holders are affected?

Only a small group. To qualify, you need to have received your loan sometime between Jan. 1, 2005 and July 31, 2007, and you need to be facing a reset of your interest rate sometime between Jan. 1, 2008 and July 31, 2010. If you’re within this range, you may be eligible to have your interest rate frozen, so you can keep your current, lower rate for five years.

Who qualifies within that range?

The bailout is really designed for homeowners who could run into trouble if their mortgage payments are raised sharply and face the prospect of losing their homes. If you’re well enough off that you can afford the higher mortgage payments after a reset, you won’t qualify. And if you’re in bad enough shape that you can’t handle the current low interest rate, you won’t qualify. For example, if you’ve already fallen behind on your mortgage payments, you’re not eligible for the rate freeze.

Do you need to live in your home to qualify?

Yes. The plan excludes people who don’t live in the homes for which they have mortgages so that speculators can’t benefit.

Why is there going to be a bailout?

Bush, Paulson, and the Administration are concerned about the fallout from the housing slump. If many people fall behind on their mortgages and have to give up their houses, there will be a series of negative repercussions. First, tens of thousands of Americans could be forced to leave their homes. They would lose whatever equity they had. Consumer spending more broadly would likely slow, hurting the economy overall. In addition, home prices could fall even more quickly than they are now. That could hurt consumer confidence well beyond those people directly affected.

Is the bailout going to be enough?

It depends on your definition of enough. The deal will add some stability to the housing market, but it won’t stop all the problems in the troubled sector. The same day Bush unveiled his plan, the Mortgage Bankers Assn. said that foreclosures had reached a record high in the third quarter. The share of mortgages that have entered foreclosure hit 0.78% in the quarter, up from the previous high of 0.65% set in the previous quarter. At the same time, delinquencies for all mortgages rose to 5.59%, from 5.12%, in the second quarter. None of the people who are delinquent or facing foreclosure will be helped by the plan.

Questions, comments, concerns? Please click on the “Comments” link below and let’s get some dialogue started on this one. We have a lot of experts that read and comment on a daily basis, as well as a lot of homeowners in need of help!

As we scramble here in the United States to pick up the pieces from the latest credit crisis and housing market crash, we often overlook the fact that U.S. lenders did not simply sell risky mortgages to homeowners. No, once they were done fleecing homeowners, lenders decided to sell those risky mortgages to overseas investors. After all, why hold onto mortgages that you know homeowners are going to be unable to pay? The U.S. mortgage lending industry essentially pulled off a Ponzi scheme of global proportions, and now the United States stands to pay the price.

Here’s how the scam went down. Back in 2000, the American economy was floundering. Some sort of correction needed to happen, but Alan Greenspan, the Federal Reserve Chairman at the time, decided that we could give the economy a bit of a boost by cutting interest rates.

Mortgage interest rates dropped, more Americans could afford to buy homes, housing prices rose, and suddenly, Americans were rich with equity. Housing values were climbing like there was no tomorrow, and with loans being so cheap, people started cashing out that inflated equity in their homes to finance their enjoyment of the good life.

Unfortunately, housing prices hit a critical tipping point. Fewer and fewer Americans could afford these overpriced abodes. Again, a market correction was in order, but the banks didn’t want that. Instead of letting the housing bubble naturally burst, which would have resulted in more affordable houses, they decided to offer more affordable mortgages–adjustable rate mortgages (ARMs) with low introductory interest rates. This enabled more people to continue buying homes, and home prices to continue to rise.

Everyone was happy. Interest rates were low, so more people could afford to buy houses, lenders and mortgage brokers were processing more loans, Real Estate agents were earning higher commissions, builders were selling more newly constructed homes, and state and local governments were raking in higher property taxes. Life was good.

The only trouble was that the banks failed to account for the fact that eventually the housing market would tank and the teaser rates on the adjustable rate mortgages were scheduled to skyrocket. The banks failed to think ahead… or did they?

Based on what you read in the mainstream press, you might tend to believe that the banks did not know what was going to happen. After all, many mortgage lenders had to fold up shop. Others were brutally punished in the stock market when their share price took a nose dive. The thought the banks were clueless, however, is simply not true. The banks were fully aware of the looming sub-prime mortgage crisis. In fact, they were well prepared to quite literally pass the buck… to foreign investors.

Passing the buck

To get these risky sub-prime mortgages off their books, the banks diversified and then bundled their mortgages, repackaged them, and peddled them to the international community as safe investments. Through financial sleight of hand, the banks tricked investment-rating agencies including Moody’s and Standard & Poor’s to assign these mortgage securities higher ratings and valuations than subprime mortgages would generally receive.

Trusting the U.S. banks and America’s well-known investment-rating agencies, foreign investors bought these securities hook, line, and sinker.

As long as the party was in high gear and housing prices were soaring, foreign investors were completely unaware of what was about to happen on the other side of the ocean (their investments were performing quite nicely, thank you very much). Unseen to them, however, interest rates on many sub-prime mortgages were scheduled to rise, making mortgage payments unaffordable for millions of Americans. When what was fated actually started to happen, foreclosure rates skyrocketed, and foreign investors were left holding the bag.

Now, the U.S. is in quite a financial pickle. Deep in debt and stripped of equity, the U.S. relied on consumer confidence and foreign investment to fuel its economy. Now that both of those assets have been shredded by the mortgage lending industry and rampant real estate fraud, what can we rely on to fuel our economy in years to come?

Last week, the Federal Reserve Board alerted the public to instances of questionable solicitations directed at homeowners. The Federal Reserve has received inquiries and complaints from recipients of direct mail solicitations that suggest there is a “Community Reinvestment Act (CRA) program” that entitles certain homeowners to cash grants or equity disbursements. Some of these solicitations may be read to indicate that the Federal Reserve endorses or supports the offers they contain. These solicitations appear to be a deceptive effort to encourage consumers to apply for a mortgage loan secured by the consumer’s home.

The Federal Reserve cautions the public about loan solicitations or other offers from lenders or mortgage brokers that offer consumers cash grants or equity disbursements as part of a “CRA Program.” No such federal programs exist and these programs are not required by the CRA.

The Community Reinvestment Act is a federal law that was enacted in 1977. It encourages depository institutions to help meet the credit needs of their communities, including low- and moderate-income neighborhoods, in ways that are consistent with safe and sound banking operations. The CRA does not entitle individuals to any grants or loans.

The Federal Reserve also wants consumers to know that it does not endorse or sponsor mortgage loan programs. Consumers should be very suspicious of conducting business with lenders or mortgage brokers that make deceptive claims. Individuals who are considering taking out a loan using their house as security are urged to shop around. Comparing loan programs offered by a variety of different lenders can help almost always you to get a better deal.