Financial Schools Reviews

The Federal Reserve Bank may be forced to start foreclosing on homes and businesses
While a record number of banks and lenders are continuing to foreclosure on homeowners who are behind on their mortgage loans, current financial circumstances might force the Federal Reserve Bank of New York to step in. But the Fed will not be stepping in to help homeowners, but rather begin its own round of foreclosures.

The bailout of Bear Stearns in 2008 left the Fed with a damaged mortgage portfolio, including a number of residential and commercial properties, according to the Wall Street Journal. Although the government is working to find alternative options, it is becoming apparent that the Fed may be forced to seize a number of properties to offset its losses.

“For the Fed to come in and foreclose on properties puts it at some reputational and political risk,” former senior Fed staffer and current American Enterprise Institute economist Vincent Reinhart told the Wall Street Journal. “If the Fed can’t figure out how to recast the terms of these mortgages and work with borrowers – it’s emblematic of the problems the government has had with other programs over the last year and a half.”

According to the Journal, the Fed has not been involved in the loan industry – outside of banking – relating to consumers and businesses since the 1930s.

RealtyTrac analysts predict that foreclosure filings – default notices, bank repossessions and scheduled auctions – in the U.S. could increase to as many as 3 million by the end of the year. However, this figure does not specify whether foreclosures by the Federal Reserve are included in their projections.

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