01/09/2012 05:32 pm ET Updated Mar 10, 2012

The Federal Reserve Discourages Foreclosures

It took a while -- years, in fact -- but the Federal Reserve is finally stepping into the foreclosure crisis. In the form of a Federal Reserve paper addressed to the Financial Services Committee of the House of Representatives, Ben Bernanke, Chairman of the Federal Reserve, has issued a public statement against the high number of foreclosure filings. Bernanke's suggestion to address the crisis: Aggressive pursuit of loan modifications and additional incentives to servicers who seek alternatives to foreclosure.

Millions of homeowners lost their homes to foreclosure before the Federal Reserve took a stand. Without a doubt, the ramifications of foreclosure extend far past the plight of homeowners, and now the nation is experiencing the consequences -- a significant decline in property values, as well as a notable decline in the condition of abandoned or bank-owned homes. These negative conditions weigh on the entire community, but the banks aren't immune to the effects. They, too, are left with homes that are steadily losing value and which are an additional financial burden to the losses that lenders already bear when a house falls back into the hands of a lender.

It's been said that banks don't want to foreclose on properties, that it's a lose-lose proposition. Yet, that is the standard policy when homeowners fall behind on their payments. As a result, lenders and servicers face additional costs, much the same as homeowners and neighborhoods who pay the price when a home is boarded up and left to deteriorate.

The Federal Reserve's stance isn't the first government recognition of the far-reaching effect of the foreclosure crisis in America. In 2009, the Home Affordable Modification Program (HAMP) was implemented by President Obama in an attempt to modify, rather than foreclosure, on mortgages. While HAMP proposed to help 3 to 4 million homeowners and save them from foreclosure, only 700,000 loans have been modified under the program, less than 25 percent of the program's initial estimate. The administration has also proposed turning foreclosed properties into rentals in an attempt to provide housing for foreclosed homeowners and control the blight caused by empty foreclosed properties.

Bernanke's statements take into account the results of foreclosure, not just on the homeowner and the bank, but also the surrounding community. Homes which are still occupied, but in the process of foreclosure, have been shown to cause a significant decline in value of other homes in the surrounding area.

While the Federal Reserve is now openly encouraging loan modifications, it also suggests that lenders offer an alternative: a deed-in-lieu of foreclosure, with an opportunity for the homeowner to rent the property. In a deed-in-lieu of foreclosure, homeowners voluntarily return their home to the bank. The rent-back agreement would allow the bank to own the home, but at the same time, allow the homeowner to prevent foreclosure and still stay in the home, as long as they meet the terms of a lease or other rental agreement.

These options can help homeowners who are at risk -- while all of the alternatives do not allow them to save their home and the financial and emotional equity they have in it--they could provide an opportunity for at-risk homeowners to keep foreclosure off their credit report, and maybe, just maybe let them stay in their home.

Bernanke's official statement supports what most of us have already known -- helping homeowners save their home is a proposition that benefits everyone -- the banks, the homeowners, their communities, and the nation. The issue is that there has not been enough enforcement to the current programs and the unfortunate thing is that American homeowners do continue to lose their homes, even while being processed for HAMP Home Affordable Modifiction Program, many homeowners should have been approved for a loan modification and been able to save their homes.

Whether you work on a loan modification on your own, through an attorney, or a non-profit agency, it is vital that you have an understanding of how the process works. Since your home matters to you the most becoming your own best advocate is not an option it is a MUST, regardless of the which route you decide to take to work through the loan modification process and save your home.

Anna Cuevas, known as "America's Loan Modification Guru," has guided thousands of Americans in keeping their homes from foreclosure. A popular blogger (, Cuevas has been called a "superhero of the loan modification industry" and has been nominated for CNN's Heroes. She is the #1 bestselling author of SAVE YOUR HOME Without Losing Your Mind or Money.