NEW YORK (Reuters) – Federal ReserveChairman Ben Bernanke on Monday said conditions in mortgage marketsremain strained, posing a threat to the economy, and urged steps betaken to prevent home foreclosure where possible.
"High rates of delinquency and foreclosure can have substantialspillover effects on the housing market, the financial markets, and thebroader economy," Bernanke said in remarks prepared for delivery to theColumbia University School of Business in New York.
Bernanke said the sharp U.S. housing downturn is producing a steeprise in mortgage delinquencies. Not all foreclosures result in the lossof the home, he said, but the high number of borrowers in distress andsharp declines in home values in regions of the country mean the shareof people who lose their homes will be higher in the current situationthan in the past.
A widespread decline in home prices is a relatively novelphenomenon, and lenders and loan servicers will have to develop new andflexible strategies to deal with this issue, the Fed chairman said.
Bernanke called on Congress to move quickly on legislation expandingthe Federal Housing Administration and strengthening oversight ofgovernment-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 loansand a deep correction in U.S. housing markets have led to financialmarket turmoil and weighed on U.S. economic growth to the point thatmany analysts believe it is in recession.
A congressional panel last week passed a sweeping bill to enable thegovernment to finance $300 billion in distressed mortgages. Its authorssay the measure would help 2 million homeowners avoid foreclosure.
The Bush administration opposes the measure, saying it exposestaxpayers to potentially significant losses if a large share of loansrefinanced 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 theFederal Housing Administration greater latitude to set underwritingstandards 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
