Greenspan ‘Shocked’ at Extent of Crisis, Foreclosures in the Spotlight

Does it really comfort anyone that Alan Greenspan pronounced himself “shocked,” shocked at the meltdown of the credit markets here and overseas, in testimony before the U.S. House of Representatives Committee on Oversight and Government Reform this morning? The former Federal Reserve chairman (pictured), famed for favoring low interest rates, told the committee, “[T]his crisis … has turned out to be much broader than anything I could have imagined…. Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself especially, are in a state of shocked disbelief.” So maybe markets aren’t perfectly self-regulating after all? We should at least have plenty of time to ponder that, since Greenspan predicted that a stabilized U.S. housing market, necessary before the stumbling economy can truly walk again, is “many months in the future.” In other congressional testimony today, Federal Deposit Insurance Corp. chair Sheila Bair told the Senate Committee on Banking, Housing, and Urban Affairs that the FDIC and the Treasury Department are coordinating their efforts to prevent avoidable foreclosures, according to “Loan guarantees could be used as an incentive for servicers to modify loans,” Bair said. “Specifically the government could establish standards for loan modifications and provide guarantees for loans meeting those standards.” The plan, she explained, would be to modify mortgages that are currently unaffordable for the homeowners into ones that would be sustainable. Bair noted that after her agency took over mortgage lender IndyMac recently, it instituted a loan modification process for loans that were 60 days or more past due and which IndyMac either owned directly or serviced. This week, she testified, IndyMac has mailed over 15,000 modification proposals to borrowers. The proposals, according to Bair, would on average cut homeowners’ monthly payments by more than $380, and more than 3,500 have been accepted so far. About two-thirds of IndyMac’s 60,000 loans are potentially eligible for the new program, said Bair, who cautioned that modified loans still have to provide “improved value” for IndyMac or other holders of the loans. And in testimony, also before the same Senate Banking Committee, Federal Reserve Governor Elizabeth Duke recapped a variety of foreclosure-prevention efforts, highlighting the HOPE for Homeowners program, which was authorized by the Housing and Economic Recovery Act of 2008, enacted last July. The act authorizes the Federal Housing Administration to guarantee up to $300 billion in new 30-year, fixed-rate mortgages for subprime borrowers, provided that the lenders agree to write down loan balances to 90 percent of properties’ current appraised values. Duke told the committee, “Lenders and servicers are analyzing their borrowers for good candidates for the H4H program, and the FHA and its authorized lenders are poised to process applications.”