The Fed chairman Ben Bernanke sees a ripple effect on the economy with the sub-prime mortgage crisis and current-price values of real estate.NEW YORK (Reuters) - Federal Reserve
Chairman Ben Bernanke on Monday said conditions in mortgage markets
remain strained, posing a threat to the economy, and urged steps be
taken to prevent home foreclosure where possible.
"High rates of delinquency and foreclosure can have substantial
spillover effects on the housing market, the financial markets, and the
broader economy," Bernanke said in remarks prepared for delivery to the
Columbia University School of Business in New York.
Bernanke said the sharp U.S. housing downturn is producing a steep
rise in mortgage delinquencies. Not all foreclosures result in the loss
of the home, he said, but the high number of borrowers in distress and
sharp declines in home values in regions of the country mean the share
of people who lose their homes will be higher in the current situation
than in the past.
A widespread decline in home prices is a relatively novel
phenomenon, and lenders and loan servicers will have to develop new and
flexible strategies to deal with this issue, the Fed chairman said.
Bernanke called on Congress to move quickly on legislation expanding
the Federal Housing Administration and strengthening oversight of
government-sponsored mortgage finance enterprises Fannie Mae (FNM.N: Quote, Profile, Research) and Freddie Mac (FRE.N: Quote, Profile, Research).
"Finding ways to avoid preventable foreclosures is a legitimate and important concern of public policy," he said.
Bernanke's comments come as a sharp spike in problem U.S. home loans
and a deep correction in U.S. housing markets have led to financial
market turmoil and weighed on U.S. economic growth to the point that
many analysts believe it is in recession.
A congressional panel last week passed a sweeping bill to enable the
government to finance $300 billion in distressed mortgages. Its authors
say the measure would help 2 million homeowners avoid foreclosure.
The Bush administration opposes the measure, saying it exposes
taxpayers to potentially significant losses if a large share of loans
refinanced by the government fail.
Bernanke stopped well short of endorsing the bill in his speech,
saying only that Congress should pass a legislation that would give the
Federal Housing Administration greater latitude to set underwriting
standards and risk-based premiums for mortgage refinancing.
(Reporting by Lucia Mutikani; Writing by Mark Felsenthal; Editing by Leslie Adler)
© Thomson Reuters 2008 All rights reserved
