April 29, 2008

IRS Withdraws Proposed Change to Treatment of Accounts, Notes Receivable
As AmBA requested in a comment letter, the Internal Revenue Service last week withdrew a proposed regulation that would have treated mortgage loans as capital assets and restricted the deductibility of mortgage defaults. The IRS published the proposed rule in August 2006, seeking to clarify the circumstances in which accounts or notes receivable are "acquired ... for services rendered" within the meaning of the Internal Revenue Code's Section 1221(a)(4). The IRS's proposal would only have allowed mortgage companies to use the losses from mortgage delinquencies to offset capital gains.

In its letter requesting the withdrawal, AmBA said, among other things, that the proposal would overturn well-established law, and there was no justification for the change. The withdrawal is a big victory for the banking industry because such an occurrence is rare. Read the withdrawal notice.  Read AmBA's comment letter.  For more information, contact AmBA's Fran Mordi. 

April 22, 2008

Lawmakers Tell Regulators Not to Use Resources on AmBA-Opposed Internet Gambling Regs
It would be imprudent for the Treasury and Federal Reserve to devote their agencies' resources to the "Sisyphean task" of issuing regulations to implement the AmBA-opposed 2006 Unlawful Internet Gambling Enforcement Act, House Financial Services Committee Chairman Barney Frank (D-Mass.) and three key panel members said yesterday in letters to Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke.

Frank -- along with committee member Peter King (R-N.Y.), subcommittee Chairman Luis Gutierrez (D-Ill.) and ranking member Ron Paul (R-Texas) -- told the regulators that they would "vigorously pursue [Frank and Paul's] legislation [H.R. 5767] to prevent the implementation of these regulations."

H.R. 5767 was introduced a week after Wayne Abernathy, AmBA EVP for financial institutions policy, testified at a subcommittee hearing that the regs would make "banks and other financial institutions police, prosecutors, judges and executing marshals in place of real law enforcement officers." Read the letters.  For more information, contact AmBA's Steve Kenneally. 

April 21, 2008

Dugan Criticizes Fannie, Freddie Appraisal Deal
Comptroller of the Currency John Dugan said that the appraisal-related agreement reached by Fannie Mae, Freddie Mac and New York Attorney General Andrew Cuomo will not eliminate flawed appraisals and might unduly burden mortgage companies. That plan would prohibit Fannie and Freddie from buying home loans where the property values are determined by in-house appraisers. "It is not clear that the appraisal function should be outside the institution," Dugan said in response to a question by AmBA representative John Rasmus at an Exchequer Club luncheon in Washington , D.C. The OCC will formally comment on the issue and the precedent of a one-state agreement with national impact, he said. For more information, contact Rasmus.

April 18, 2008

SENATORS URGE FED ACTION ON STUDENT LOANS
Senate Banking Committee Chairman Chris Dodd (D-CT) and six other Committee Members wrote to Federal Reserve Chairman Ben Bernanke to urge him to use the Fed’s “existing authority to ensure that there is capital available to meet the demand for federal student loans for the upcoming academic year.”

“We appreciate the Fed’s recent decision to expand its lending operation through the creation of the new Term Securities Lending Facility (‘TSLF’),” the letter said.  “We ask you to consider similar bold action in order to head off a potential crisis in the student loan market by allowing primary dealers to pledge federally-guaranteed and AAA-rated private student loans as collateral at the TSLF.”

Chairman Dodd and Sen. Bob Corker (R-TN) also wrote to Treasury Secretary Henry Paulson yesterday, urging him to “inject liquidity into the student loan market” through the use of the Federal Financing Bank.

April 17, 2008

FDIC ISSUES COVERED-BOND INTERIM STATEMENT
The FDIC Board issued an interim final policy statement to provide certainty on when, in the event of a receivership or conservatorship, the FDIC will allow access to pledged covered-bond collateral.  Covered bonds are general obligation bonds issued by a trust or special purpose vehicle and secured by a pledge of loans that remain on the bank’s balance sheet.

The certainty provided by the statement is intended to help develop the U.S. covered-bond market while the FDIC and other regulators evaluate the bonds’ benefits and risks, the FDIC said.  AmBA believes the FDIC's action will make more funds available for mortgage lending at a time when liquidity is badly needed.

There will be a 60-day comment period after the statement’s publication in the Federal Register.

For more information, contact AmBA Securities Association General Counsel Sally Miller at 202-663-5325 or smiller@aba.com.

Dugan: Aggressively Identify and Take Action on Distressed CRE Loans
Community banks with distressed commercial real estate loan portfolios should realistically recognize their problems and deal with them, Comptroller of the Currency John Dugan said at the Exchequer Club in Washington, D.C. OCC believes that such banks should identify their problem loans; stratify their portfolios to identify borrowers who have a chance to make it, and engage them in workout strategies; identify borrowers who cannot make it, and pursue an exit strategy; reward loan officers for bringing problems to management's attention early; and accurately identify losses and nonaccruals, and properly classify loans, Dugan said.

He emphasized that the OCC will work with community banks to address problems as they arise. "[T]hat process works best with a combination of early and realistic problem identification by bank management; frequent and robust communication between bankers and examiners; and balanced supervision," Dugan said. Read more.  Read Dugan's speech. 

April 14, 2008

FCA Approves AmBA-Opposed Rule on Processing, Marketing Firms
Despite thousand of letters of opposition from AmBA agricultural bankers, the Farm Credit Administration approved a final rule to expand the Farm Credit System's lending authority by amending the criteria used to determine which legal entities are eligible for FCS financing as processing and marketing operations.

FCS institutions previously could finance only processing and marketing businesses with more than 50 percent farmer ownership. But the FCA's final rule eliminates the farmer-ownership requirement and replaces it with criteria that permit FCS financing of businesses that are investor-owned and have only a nominal connection to bona fide farmers.

AmBA and its ag bankers waged a long, unrelenting campaign against the rule -- taken from the FCS's Horizons Project -- but the FCA chose to ignore their deluge of comments. The association is closely analyzing the regulation, which goes into effect 30 days after publication in the Federal Register. Read the rule.  Read AmBA's comment letter on the rule.  For more information, contact AmBA's John Blanchfield. 

Report Issued on Disclosure Practices for High-Risk Instruments
The disclosure practices for certain high-risk financial instruments can be enhanced without necessarily amending existing disclosure requirements, according to a report issued Friday by the senior financial supervisors of five countries. "Leading-Practice Disclosures for Selected Exposures," based on a survey of 20 large, international financial firms, provides examples of leading information-reporting practices on exposures associated with such instruments as collateralized debt obligations, residential mortgage-backed securities, commercial mortgage-backed securities, other special purpose entities and leveraged finance loans. Read more.  Read the report.

April 11, 2008

FCA ENDORSES HORIZONS AUTHORITIES FOR FCS IN NEW RULE
The Farm Credit Administration (FCA) approved a final rule on processing and marketing that constitutes a significant expansion of Farm Credit System (FCS) business lending authority.  The AmBA-opposed rule – which borrows heavily from the FCS’s Horizons agenda – allows the FCS to finance businesses that are owned by investors rather than farmers, expanding FCS lending authority to include many new commercial enterprises.

Previous rules allowed FCS financing only for processing and marketing businesses that have greater than 50 percent farmer ownership.  The final rule eliminates the farmer ownership requirement and replaces it with new criteria allowing for investors to own 75 percent or more of a business.  The new criteria permits FCS financing of businesses that may have only a nominal connection to bona fide farmers.

AmBA and the banking industry engaged in a significant effort against this rule throughout the regulatory process, but the FCA chose to ignore the thousands of comments they received from bankers opposing the rule.

AmBA is performing additional analysis of the rule, which will be effective 30 days after its publication in the Federal Register.

For more information, contact AmBA Director of the Center for Agricultural & Rural Banking John Blanchfield at 202-663-5100 or jblanchf@aba.com.

April 10, 2008

Proposal Would Enable FHLBs to Restructure Subprime Mortgage Loans
The Federal Housing Finance Board proposed a rule that would authorize the Federal Home Loan Banks to establish homeownership set-aside programs to refinance or restructure nontraditional and subprime mortgage loans for low- and moderate-income households. The proposal would give FHLBs the authority to use their Affordable Housing Programs' direct set-aside subsidies for such refinancing or restructuring. That authority would expire on June 30, 2011. There will be a 60-day comment period on the proposed rule following its publication in the Federal Register. Read more.  Read the proposed rule. For more information, contact AmBA's Joe Pigg. 

April 9, 2008

AmBA Supports Fed's Mortgage-Lending Proposal, But Suggests Changes
AmBA supports the Federal Reserve's efforts to protect consumers from unfair and deceptive mortgage-lending practices in its proposed amendments to Regulation Z, but is concerned about some provisions, the association said in a comment letter. AmBA said it particularly supports the Fed establishing a uniform standard for all creditors, including nonbank mortgage lenders, and emphasized that state and federal officials must enforce such standards in a consistent manner.

Proposed triggers for higher-priced loans and the potential litigation risk for lenders that extend credit classified as "higher-priced," however, are troubling, AmBA added. "Many of these concerns would be addressed ... if the test for a higher-priced loan were to be crafted in a way that clearly excludes the prime market," the association said. Read the comment letter. For more information, contact AmBA's Krista Shonk. 

April 4, 2008

Bernanke: Bear Stearns' Collapse Threatened Economy
The U.S. government rescued Bear Stearns because the investment bank's collapse would have reverberated throughout the economy, Federal Reserve Chairman Ben Bernanke and other regulators told the Senate Banking Committee. The Fed last month funded JP Morgan Chase's purchase of Bear Stearns' bank holdings with a $29 billion loan. "Normally, the market sorts out which companies survive and which fail ... ," Bernanke said. "However, the issues raised here extended well beyond the fate of one company." Bear Stearns participated in a wide range of critical markets, and its "failure likely would have led to a chaotic unwinding of positions in those markets and could have severely shaken confidence," he explained. Read Bernanke's testimony.  Read other witnesses' testimony.

April 3, 2008

Fed to Add Fuel Surcharges to Some Services
Due to rising fuel costs, Federal Reserve Banks will start adding surcharges to certain items beginning May 1, the Fed said. A $2 surcharge per cash letter will be assessed on all forward and return legacy paper cash letters, and there will be a $0.002 surcharge on each consolidated item shipped via the check relay network, officials said. Read more. 

April 2, 2008

Banks Encouraged to Comment on Fed's Proposed Mortgage-Lending Reforms
AmBA is encouraging members to file comment letters by the April 8 deadline on the Federal Reserve's proposed mortgage-lending reforms that would add consumer protections to mortgage and home equity loans. While much of the proposed rule is intended to prevent unscrupulous subprime lending, some sections would apply to all loans secured by a consumer's principal dwelling. As a result, the proposal would affect all mortgage lenders to some degree. Read the proposed rule.  Read an outline of the proposal.  Read about filing a comment letter. For more information, contact AmBA's Krista Shonk. 

April 1, 2008

AmBA: Treasury's Regulatory Reform Blueprint Contains Troubling Provisions
The so-called "blueprint" for financial regulatory reform that the Treasury Department unveiled contains some extremely troubling provisions, AmBA President Ed Yingling and COO Diane Casey-Landry said in a CEO Alert. Among the most troubling, they said, was the blueprint's proposed "long-term reorganization of the financial regulatory system into a cluster of agencies [that] would likely cripple the dual banking system by undermining state charters and making it difficult for them to run a business."

Yingling and Casey-Landry also emphasized that AmBA strongly opposes the blueprint's recommendation to phase out the federal thrift charter and sweep the Office of Thrift Supervision into the Office of the Comptroller of the Currency. The blueprint also has good points, they added, including proposals to effectively enforce uniform, universal mortgage standards, and create an optional federal insurance charter.

"Treasury's intention is to leave behind a blueprint for reform, but there's not enough time left for the blueprint to move far from the table," Yingling and Casey-Landry explained. "The report may generate some hearings ... [b]ut much will be left to the succeeding administration -- and it is unlikely that a new administration would want to wade into the swamp of regulatory restructuring." Read the CEO Alert.  Read the Treasury's blueprint. For more information, contact AmBA's Mark Tenhundfeld.

HUD Secretary Jackson Resigns
Housing and Urban Development Secretary Alphonso Jackson said he will resign April 18. The announcement came as federal authorities were investigating whether he had given lucrative housing contracts in the Virgin Islands and New Orleans to friends. Senate Banking Committee Chairman Chris Dodd (D-Conn.) and Sen. Patty Murray (D-Wash.) had called for Jackson's resignation in a March 21 letter to President Bush, saying he was "unfit" to run the agency during a national housing crisis. Read more.  Read the senators' letter. 

March 31, 2008
Treasury to Release Plan for Regulatory Overhaul
Treasury Secretary Henry Paulson today will unveil Treasury's long-awaited "blueprint" for financial regulatory reform. As expected, the plan includes elements opposed and supported by the banking industry. ABA strongly opposes its recommendation to eliminate the thrift charter and merge the Office of Thrift Supervision with the Office of the Comptroller of the Currency, as well as provisions that would cripple state banking charters. On the other hand, Treasury for the first time will announce its support for an optional federal insurance charter, an ABA priority.

The plan lists as a long-term goal the reorganization of the entire financial regulatory system into a triumvirate of agencies focusing on stability, prudential supervision, and consumer protection. Such a sweeping proposal in the final months of the Administration stands little chance of enactment this year, but its debate may help shape the regulatory agenda for the next Administration.

In a statement issued yesterday, ABA President and CEO Ed Yingling promised that ABA will be active in the debate. "This review needs to be conducted carefully, thoughtfully, and thoroughly, with the goal always being how to facilitate the ability of financial services firms to serve their customers," he said. "As we do so, we must be careful not to let rearranging regulatory boxes substitute for real improvements." Read Treasury's executive summary of the proposal.  Read ABA's statement. For more information, contact Mark Tenhundfeld. 

March 28, 2008
OCC Details Elements of Annual Fiduciary Account Reviews
The Office of the Comptroller of the Currency has issued guidance to national banks on the annual requirement to conduct reviews of all assets of each fiduciary account for which the bank has investment discretion. The reviews are to evaluate whether the assets are appropriate, individually and collectively, for the account. The guidance identifies relevant information, stresses the importance of reviewing all assets, provides information on different types of reviews, and emphasizes the need for documentation. Read more. 

AmBA Backs Technical Improvements to Reserve Requirement Rules
In a comment letter filed recently, AmBA backed a Federal Reserve proposal that would allow all banks, regardless of whether they are members or non-members of the Federal Reserve System, to satisfy the Fed's reserve requirements by maintaining deposits using pass-through accounts. Currently, non-member banks may use such accounts but member banks are required to maintain reserves directly in a Federal Reserve Bank account. The proposal conforms the Fed's rule to a provision in the AmBA-backed Financial Services Regulatory Relief Act of 2006.

AmBA also expressed support for a technical fix to the definition of "savings deposit" related to reserve requirements, and the association cautioned the Fed to be judicious in asking for more information from banks about their deposits. Read the letter. For more information, contact AmBA's Mark Tenhundfeld. 

March 27, 2008
Paulson: Time to Rethink Investment Bank Regulation
The Federal Reserve should have greater authority over investment banks if they are to have continued access to the discount window, Treasury Secretary Henry Paulson said at a conference on capital markets. While Paulson noted that non-bank access to the Fed's liquidity facilities is temporary, steps should be taken to ensure taxpayer funds are protected. Specifically, Paulson said the Fed should work closely with the Securities and Exchange Commission to gain access to the kind of company information the Fed needs to make informed lending decisions. He added that the President's Working Group on Financial Markets will be evaluating the policy issues raised by granting less-regulated, non-bank institutions access to the window. Read more. 

FDIC Plans to Staff Up for Bank Failures
The FDIC plans to hire up to 138 new employees for its resolutions division to help deal with an expected increase in bank failures, an agency spokesman said. While some will be needed to replace retiring staff, many are expected to be temporary. At the end of 2007, there were 76 institutions on FDIC's "Problem List," with combined assets of $22.2 billion.

No Decreases for Conforming Loan Limit
The conforming loan limit used by Fannie Mae and Freddie Mac will not decrease from its current $417,000 in 2009 and subsequent years, the Office of Federal Housing Enterprise Oversight said. Also, as part of a final rule, the agency said the limit will not increase until cumulative increases in house prices exceed cumulative decreases since the $417,000 limit was first reached. The rule is meant to address concerns about decreases in the house price data used to set the limit. It does not affect the temporary increase in the conforming loan limit for high-cost areas that expires Dec. 31. Read more.

FDIC Issues Proposal for Potential Dividend Calculation
FDIC published its proposal for a variation of the "payments" method for allocating future dividends to FDIC-insured institutions. The proposal would divide the total dividend in any year into two parts. One part would be allocated based on the ratio of each institution's 1996 assessment base compared to the total of all existing eligible institutions' 1996 assessment bases. The other part would be allocated based on each institution's ratio of cumulative eligible premiums over the previous five years to the total of cumulative eligible premiums paid by all existing institutions over the previous five years. Comments are due May 23. Read more. 

March 25, 2008

FHFB INCREASES MORTGAGE-BACKED SECURITIES PURCHASE AUTHORITY
The Federal Housing Finance Board (FHFB) voted to allow the 12 Federal Home Loan Banks to increase their purchases of mortgage-backed securities, which the agency said could add an additional $100 billion into the mortgage markets. 

The Federal Home Loan Banks’ investment authority for mortgage-backed securities will increase from the current cap of 300 percent of bank capital to 600 percent for two years, effective immediately.  The purchase of additional mortgage-backed securities will be limited to those issued by Fannie Mae and Freddie Mac. 

The FHFB’s action will increase mortgage market liquidity, while maintaining appropriate safety, soundness, and capital protections so as not to harm the Federal Home Loan Banks.

March 21, 2008

OCC Issues Emergency Loan Rule
The Office of the Comptroller of the Currency yesterday issued an interim final rule that will enable the agency to establish a temporary increased lending limit so that national banks can grant larger loans in emergency situations. Current regulations, in most cases, limit the amount a national bank can loan a single borrower to 15 percent of the bank's capital and surplus. The emergency loans and credit extensions will be short in duration, the agency said, and will not present an unacceptable risk to the lending institution. When approving a temporary lending limit, the OCC also will impose any supervisory oversight and reporting measures it deems appropriate. The comment deadline for the rule, which became effective yesterday, is April 21. Read the interim rule. 

Dugan: OCC Ombudsman's Role in Exam Appeals Process Reflects ABA's Concerns
The ombudsman's role in the Comptroller of the Currency's examination appeals process is consistent with recommendations that ABA made to the banking regulatory agencies several weeks ago, Comptroller John Dugan said in a letter this week. "[T]he structure, functions and scope of responsibilities of the OCC's ombudsman are responsive to the issues and concerns you raise," Dugan said. The association asked each agency in a Jan. 31 letter to review its exam appeals process to determine whether improvements could be made and recommended that the ombudsmen play an enhanced role in the process. Read ABA's letter. Read Dugan's letter. For more information, contact ABA's Mark Tenhundfeld. 

March 20, 2008
OFHEO Cuts Capital Requirement for Fannie, Freddie
The Office of Federal Housing Enterprise Oversight said that it has cut Fannie Mae and Freddie Mac's surplus capital requirement from 30 percent to 20 percent. The agency estimated that the reduction, in combination with the release of portfolio caps announced last month, should provide up to $200 billion of immediate liquidity to the mortgage-backed securities market, and allow Fannie and Freddie to purchase or guarantee about $2 trillion in mortgages this year. This added capacity also will permit them to do more in the jumbo temporary conforming market, and subprime refinancing and loan modifications areas, OFHEO said. Read more. 

OCC INCREASES LIMITS FOR CERTAIN LOANS
The OCC issued an interim rule that would establish an increased lending limit for loans and extensions of credit that national banks make to other financial institutions if the OCC determines that they are “essential to address an emergency situation” such as “critical financial markets stability.”  Loans made under the increased limits must be of short duration and not present “unacceptable risk” to the lending institution, the OCC said.  The interim rule is effective March 20, 2008.

March 18, 2008

FDIC Stresses Importance of Managing CRE Concentrations
The FDIC issued a financial institutions letter that re-emphasizes the importance of strong capital and loan-loss allowance levels, along with robust credit risk-management practices, for state nonmember institutions with significant concentrations of commercial real estate loans, and construction and development loans. The letter complements the principles articulated in the Dec. 6, 2006, interagency statement titled "Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices." "[I]t is a good time to re-emphasize the 2006 guidance because a number of banks have significant CRE concentrations, and the weakness in housing across the country may have an adverse effect on those institutions," FDIC Chairman Sheila Bair said. Read more.  Read the letter. Read the 2006 interagency statement.  For more information, contact AmBA Mark Tenhundfeld. 

March 12, 2008

Paulson: Housing Still Poses Largest Downside Risk to U.S. Economy
While the U.S. economy's long-term fundamentals are strong, the housing correction continues to pose its largest downside risk, Treasury Secretary Henry Paulson told bankers at the AmBA Government Relations Summit in Washington, D.C. "The housing data that has come out over the last several weeks confirms the views held by a number of forecasters that this correction will take some time to play out," Paulson said.

Some in Washington are proposing major government interventions in the housing market, but "most of the proposals I've seen would do more harm than good," he said. "I'm not interested in bailing out investors, lenders and speculators. Our focus in this administration ... is on targeting struggling homeowners who want to stay in their homes."

The recently passed economic stimulus package and the Hope Now alliance -- the at-risk homeowners outreach program of which AmBA is a participant -- comprise the administration's two-pronged approach to address rising foreclosures, Paulson said. Most stimulus package checks should be released by early July, he explained, and the infusion of this money into the economy should help create more than 500,000 jobs.

On the Hope Now front, servicers' response rate from delinquent borrowers they're trying to help has risen from 2 to 3 percent before the alliance's creation to about 21 percent. "That's a huge improvement, but it still poses a big problem [because] 80 percent of the people that we've contacted aren't responding, so we've got more work to do," Paulson said.

Fed Moves to Ease Tight Liquidity
In related news, the Federal Reserve announced that it will lend up to $200 billion of Treasury securities to primary dealers, a group of 20 big investment firms, for a 28-day term. The liquidity effort, called the Term Securities Lending Facility, is the latest central bank program designed to provide necessary operating capital to banks and keep financial markets in order. The firms can put up as collateral mortgage-backed securities issued by Fannie Mae and Freddie Mac. The Fed is working in concert with the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank. Read more. 

Bair Bullish on Banking Industry Despite Bad Quarter
Despite "a very bad quarter for the banking industry" at the end of 2007, FDIC Chairman Sheila Bair found some silver linings at the AmBA Government Relations Summit. Bair emphasized that 99 percent of all banks are well capitalized, and she said that short-term economic problems will make more consumers and investors appreciate their value as regulated entities. "I think that you are really good buys right now. I think long term, the short-term challenges will help the industry. I think it's going to bring market share back to regulated entities such as banks," Bair said.

She also made an emphatic point on the value of reserves, when a banker -- during the question-and-answer period -- told her that while regulators are urging banks to build up their reserves, accountants and some examiners are saying the opposite. "You should be reserving as much as you want to reserve," Bair said. "If you have an accountant or an examiner tell you not to do it, e-mail me directly and give me their name and phone number and I will call them."

March 11, 2008

AmBA Urges FDIC to Lower 2008 Premium Assessment Rates
AmBA urged the FDIC Board to lower 2008 premium assessment rates, a topic the board is slated to consider "Keeping funds in the banks to support lending in their communities is increasingly important in today's economy and can be prudently done given the growing strength of the insurance fund," AmBA President and CEO Ed Yingling said in a letter FDIC Chairman Sheila Bair.

Yingling provided three fundamental reasons why an assessment-rate reduction is appropriate:

• One of Congress' purposes for giving the FDIC the flexibility to manage the reserve ratio is to reduce the financial impact on banks when their lending resources are needed to fuel economic growth and recovery;
• Even with lower assessment rates, the FDIC will raise more income in 2008 than in 2007, and will continue to build the Deposit Insurance Fund; and
• Progress toward the 1.25 percent designated reserve ratio is a year ahead of schedule, and will meet the original mid-year 2009 time frame even with a premium reduction.

Read the letter.  Read the FDIC Board meeting agenda.  For more information, contact AmBA's Jim Chessen. 

March 5, 2008

Bernanke Urges More Principal Writedowns to Avoid Foreclosures
The current housing situation calls for a vigorous response, including writing down the principal of some troubled mortgages in order to avoid widespread foreclosures and break the steep drop in housing prices, Federal Reserve Chairman Ben Bernanke said at a bankers convention in Orlando, Fla. A stressed borrower with little or no equity has less ability and less financial incentive to try to remain in the home, Bernanke said. "In this environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure," he said. Read Bernanke's speech.