Fed trying to jawbone people into staying in home that they can't afford. What's wrong with walking away and renting?

www.boston.com/business/personalfinance/articles/2008/03/16/boston_fed_makes_rare_direct_appeal_to_hard_hit_borrowers/

Boston Fed makes rare direct appeal to hard-hit borrowers
Email|Print|Single Page| Text size – + By Kimberly Blanton
Globe Staff / March 16, 2008
In a rare appeal to Main Street, the head of Federal Reserve Bank of Boston is telling subprime borrowers how to save their homes in an opinion piece distributed to 139 community newspapers across New England.

The 668-word piece, by Eric Rosengren, the president of Boston's Fed, reads less like an opinion piece and more like a public service announcement. The article seeks to prevent some subprime borrowers from entering foreclosure by impressing upon them the urgency of contacting a lender to renegotiate their mortgage with their current loan company, or with one of five lenders participating in a regional mortgage-rescue program.

"The time to act is now," he wrote, even providing toll-free numbers of banks so homeowners can begin the process. The piece, for publication beginning today, was also translated into Spanish and Portuguese, and distributed to those communities' newspapers.

The letter is among numerous efforts by Rosengren, his counterparts at other regional banks around the country, and the Federal Reserve Board to deal with the growing mortgage crisis. The Fed's campaign comes as both federal and state regulators have come under criticism for failing to anticipate lending problems and to take action earlier to prevent them.

"The goal is to reach these borrowers and make them aware from a reliable source that now is the time to think about what their options are," Rosen gren said in an interview. "A natural human tendency is to put off unpleasant tasks. It's encouraging people not to wait any longer - now is a good time."

The subprime crisis continues to snowball, and foreclosures this year are expected to exceed 2007 levels. Subprime mortgages are higher price loans made to borrowers with questionable credit histories. These adjustable-rate loans started with low interest rates but now are resetting, causing monthly payments to balloon beyond what many borrowers can afford and forcing many into foreclosure.

Fed research found about 16 percent of borrowers may be eligible to qualify for a new mortgage and convert their subprime mortgages to other, more affordable loans. Rosengren said it's extremely difficult to reach these borrowers, who often got a loan through an independent broker or loan company that may have gone out of business.

He and other Boston Fed officials also have taken their message to new venues, including local chambers of commerce, the Massachusetts Bar Association, local community groups, and community banks.

The article is targeted to borrowers not yet in foreclosure. It urges those with high-rate loans who may have equity in their homes to seek out help if their payments are too high. It also directs them to the Mortgage Relief Fund, a $125 million fund set up by Bank of America Corp., Citizens Bank, Sovereign Bank, TD Banknorth, and Webster Bank to refinance subprime mortgages.

The opinion piece also says some borrowers may be able to qualify for federally sponsored mortgages, and it directs lenders to be responsive to borrowers who inquire at their branches.

Federal Reserve officials have not, historically, tried to help consumers directly, and many interpret these educational efforts as a last-ditch effort.

"They've taken a beating," said Patrick Newport, an economist for Global Insight, a Lexington economic consulting firm. "They are doing everything they can because this thing is just a mess, and it's getting worse."

He conceded the op-ed piece could make a small difference to individual borrowers, though its impact will be limited. "Most people don't really know who this president of the New England Federal Reserve is," he said.

Thomas Lavelle, the Boston Fed's spokesman, said the opinion piece was sent to small regional papers across New England including the Burlington Free-Press in Vermont, the Springfield Republican, The Lowell Sun, and The Advocate in Stamford, Conn. It was also distributed to dozens of community papers, including The Sun Journal in Lewiston, Maine, the Kennebec Journal in Maine, the Central Maine Morning Sentinel, and The Metro-West Daily News in Framingham.

Sean Leonard, the editorial page editor of The Daily Item of Lynn, said he plans to run the article soon as a complement to his paper's coverage of foreclosures, which hit that community hard. He said he was surprised to receive it and believes it will carry "gravitas," because it's written by a high-level Fed official.

"There's a sharp realization of what's happening, but people caught in the subprime-mortgage crisis - they don't know what to do," he said. The information in the article, he said, "can certainly help."

Kimberly Blanton can be reached at blanton@globe.com.