Fed Chairman Ben Bernanke is urging lenders to “forgive portions of mortgage debt held by homeowners at risk of defaulting,” says Bloomberg.

Efforts by both government and private-sector entities to reduce unnecessary foreclosures are helping, but more can, and should, be done,” Bernanke said in a speech to bankers in Orlando, Florida, today. “Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure.”

Bernanke’s call goes beyond the stance of the Bush administration and previous Fed comments. By comparison, the central bank’s Feb. 27 report to Congress called for lenders to “pursue prudent loan workouts” through means such as modifying mortgage terms and deferring payments.

The Fed chief highlighted the threat posed by home values falling below mortgage balances, something Treasury Secretary Henry Paulson played down yesterday. Bernanke said the “recent surge” in delinquencies has been “closely linked” to the slide of home equity.

Is Ben trying to put “You Walk Away.com” out of business?

Bernanke Urges Banks to Forgive Portion of Mortgages (Update3) [Bloomberg]
(Matt Stroshane/Bloomberg News)

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