WASHINGTON, Jan. 28 (UPI) -- The U.S. Federal Reserve says it will help homeowners nearing foreclosure on the mortgages it controls as a result of federal financial rescue efforts.
Fed Chairman Ben Bernanke informed members of Congress Tuesday of the decision to renegotiate some of the loans the central bank absorbed when it rescued investment firm Bear Stearns and insurance company American International Group Inc., The Washington Post reported Wednesday.
The Bear Stearns assets are worth $27 billion. AIG's assets include about $20 billion in mortgage-backed securities, the Post said.
How much is tied to residential loans is unclear. But Sen Banking Chairman Christopher Dodd, D-Conn., called the decision "an important advance."
"I hope to work with the (Fed) to strengthen the program," he said.
Part of the program will involve principal reductions for homeowners whose loan balances are more than 125 percent of the estimated value of the property, the Post said.
"Principal write-downs are still the critical issue" said Alan White, an assistant professor at Valparaiso University School of Law.
"It's a step beyond what the FDIC is doing with its own portfolio," he said.
