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Fed Governor Duke Admonishes Bankers

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By : John Cutts    99 or more times read
In a prepared statement to the American Bankers Association (ABA), Federal Reserve Governor Elizabeth Duke called on banks to act more responsibly to prevent another bank-related crisis in the future and to take measures to help slow down foreclosures.

Duke also decried the current affiliation between banks and commercial companies. She said that their affiliation reduces banks’ ability to control credit and exposes banks to risks taken by commercial firms. According to her, the foreclosure crisis largely emanated from banks’ failure to enforce credit controls. She then called for stricter banking supervision to ensure that banks follow and enforce credit regulations.

Duke was appointed Federal Reserve governor in August 2008. She was formerly the chairperson of ABA and was also a top executive at a community bank in Virginia before assuming the central bank leadership.

In a speech in New York City, Governor Duke blamed both the banks and the borrowers for the credit and housing crisis. While noting that many foreclosure-troubled homeowners should not have borrowed in the first place, she criticized the banks for their failure to check borrowers’ ability to pay before providing loans. Some analysts say that banks are also to be blamed for allowing many borrowers to use risky types of mortgage loans or in other cases, for offering them schemes that enable them to afford the monthly amortizations in the first years. Some ignored obvious facts that many borrowers could not afford to pay the increased amortizations after the first years.

Duke restated that foreclosures are dragging down macroeconomics and blowing up problems in the financial sector. The more than 2 million home foreclosures in 2008 should not be allowed to balloon and block the country’s road to recovery.

The governor enumerated ways by which bankers could help troubled borrowers, such as helping them undertake short sales, offering loan modifications that would significantly reduce monthly payments and allowing borrowers to rent their homes as they find remedies or as they wait for foreclosure mitigation measures from Obama’s administration.

In response to calls in Congress for bankers to contribute to the resolution of the foreclosure crisis, giant mortgage lenders such as Citigroup and JPMorgan Chase committed to offer a three-week suspension of foreclosure proceedings. The suspension is intended to give troubled borrowers a chance to receive any help from Obama’s foreclosure mitigation program. The government-controlled mortgage corporations Fannie Mae and Freddie Mac also committed to extend their foreclosure suspension measures.
John Cutts has been educated in the finer points of the foreclosure market over 5 years.

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