Banks didn't create the subprime mortgage disaster but the new president of the Federal Reserve Bank of Boston thinks they can play a significant role solving the problem.
Eric Rosengren said Boston Fed research about real estate lending activity in New England suggests some borrowers stuck with subprime loans could be eligible for refinancing into more conventional bank mortgages.
"The most critical issue is that finance that supports responsible subprime lending continues, despite recent problems," Rosengren said in prepared remarks delivered to the Portland Regional Chamber of Commerce in Maine this morning. "I believe there is an opportunity for commercial and savings banks to help provide liquidity in this market."
Rosengren pointed to several specific types of borrowers who may be best suited for conventional mortgage refinancing. He pointed to some subprime borrowers who have relatively good credit scores, have owned homes long enough to have gained significant equity or have been keeping up with payments on loans based on teaser interest rates higher than current conventional rates.
"To the extent that some subprime borrowers have improved their (credit) score with regular payments, already had a high (credit) score or have appreciated wealth in their houses, now is the time for these borrowers to seek lower cost financing opportunities," he said.