Federal Reserve Chairman Ben Bernanke yesterday proposed an idea to Congress to allow government-sponsored entities Fannie Mae and Freddie Mac to securitize jumbo-size mortgages, but have the federal government guarantee them, the Wall Street Journal reported today. Fannie and Freddie currently can buy mortgages only up to $417,000, and Congress — so far — hasn’t acted to lift that limit despite distress in that market that has made jumbo mortgages at “somewhat tighter terms and higher prices,” according to Bernanke. He suggested that Congress could consider allowing the GSE’s to buy mortgages of as much as $1 million from lenders, pay the government a fee for guaranteeing them and then turn them into securities to be sold to investors. “That would be, I think, of some assistance to the mortgage market,” Bernanke said. “From the federal government’s point of view, it would be taking on some credit risk, which you may or may not be willing to do.” He added, “It would be a good idea to make the GSEs ultimately responsible for some, any excess losses, or some part of excess losses, relative to the premiums that are paid.”
See Also: Bankruptcy Phoenix

Major U.S. banks have voiced concerns about H.R. 3609, a bill that would allow bankruptcy judges to rework the terms and conditions of home mortgage loans for chapter 13 debtors, saying that such changes could dry up mortgage funding and make the cost of owning a home more expensive for all borrowers, the Wall Street Journal reported today. “The bill will create risk — and the markets will respond to that risk by increasing the interest rate or the down payment that homeowners pay,” said Scott Talbott, senior vice president of the Financial Services Roundtable, an industry group. Lenders also fear that the legislation could open the gates to other changes to the bankruptcy law. Some in the Senate are considering a change to the law that would provide relief to students struggling with qualified college loans. The bill’s sponsor, Brad Miller (D-N.C.), said that his legislation isn’t an overture to revisiting the 2005 law as it largely avoids making specific changes to the law and focuses more on the treatment of mortgages in the bankruptcy process. House Judiciary Chairman John Conyers (D-Mich.) said that his panel could vote on the bill as early as this week. That could set the stage for action this month by the full House.
Bankruptcy New York

Merrill Lynch & Co., in a bid to slash its exposure to risky mortgage-backed securities, has engaged in deals with hedge funds that may have been designed to delay the day of reckoning on losses, the Wall Street Journal reported today. The transactions are among the issues likely to be examined by the Securities and Exchange Commission. The SEC is looking into how the Wall Street firm has been valuing, or “marking,” its mortgage securities and how it has disclosed its positions to investors, a person familiar with the probe said. Regulators are scrutinizing whether Merrill knew its mortgage-related problem was bigger than what it indicated to investors throughout the summer.