More foreclosure aid needed

Federal Reserve Chairman Ben Bernanke said that the government must do more to address foreclosures.

Bernanke, speaking at a Fed conference in Washington, D.C., said that beyond just keeping homeowners in their homes, the Fed must continue to focus on foreclosure prevention to help stabilize the housing market and economy as a whole.

"The housing market remains central to the economic and financial challenges that we face," Bernanke said. "Reducing the number of preventable foreclosures would not only help families stay in their homes, it would confer much wider benefits."

According to Bernanke, about 15% to 20% of borrowers are "underwater" on their mortgages, meaning their homes are worth less than they owe. In addition, he said, 20% of subprime mortgages are seriously delinquent. Bernanke estimated that 2.3 million foreclosures will be initiated in 2008, compared to an average of 1 million before the mortgage meltdown.

Bernanke said the Fed, Treasury Department and Federal Deposit Insurance Corp. have already planned or put in place several measures aimed at stemming foreclosures.

Bernanke also recommended a plan that would have the government share the cost if the loan servicer reduces the borrower's monthly payment. Current government initiatives have encouraged servicers to lower borrowers' payments, but the plans have offered little incentive to do so. Bernanke said this approach would increase the incentive, which would "improve the prospects for sustainability."

"Despite good-faith efforts by both the private and public sectors, the foreclosure rate remains too high, with adverse consequences for both those directly involved and for the broader economy," Bernanke said. "More needs to be done." 

Treasury plans to lower mortgage rates to 4.5%

The Treasury Department is considering a plan to purchase mortgage-backed securities in the hopes of driving mortgage rates to as low as 4.5%, an industry source said.

If it gets people buying homes and spending, it will help reverse the economy and get us out of this recession," said Scott Talbot, senior vice president of the Financial Services Roundtable, which is pushing the measure.

While it takes time to entice new buyers into the market, low rates accelerate that process, said Greg McBride, senior financial analyst at Bankrate.com.

"It is clearly designed to bring buyers into the marketplace and soak the inventory of unsold homes,"

Taxpayers: Furious over homeowner bailouts

Ask most Americans whether they're in favor of spending taxpayer dollars to help delinquent mortgage borrowers and you're likely to get an emphatic "No!"

But the government didn't ask its citizens before it committed hundreds of billions of taxpayer dollars to guarantee loans through various foreclosure prevention initiatives such as FHASecure and Hope for Homeowners, which let troubled borrowers refinance expensive mortgages into more affordable loans. Nor did it take a vote before it agreed to fund the new streamlined mortgage modification programs for loans backed by Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500).

And now there is the possibility that some of the hundreds of billions of dollars allocated for the Treasury's Troubled Assets Relief Program will go towards bailing out borrowers.

Taxpayers are mad - especially those who held off buying their own homes or were careful not to spend beyond their means.

Where home prices are headed next

The housing implosion is nowhere near over. In 75 of the 100 top U.S. cities, prices are expected to fall in the next 12 months according to a source.

According to another source, housing prices will continue to plummet by 12.7% in the 12 months ending February.

Meanwhile, foreclosure filings more than doubled in the first three months of 2008, spiking 112%. So far this year 156,463 families have lost their homes to repossessions. Many markets won't hit bottom till late 2009 or even 2010