Published: Sunday, September 23, 2007
Mopping up the mortgage mess
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Associated Press Secretary of Housing and Urban Development Alphonso Jackson testifies at the House Financial Services Committee Thursday in Washington, D.C.
WASHINGTON - Federal Reserve Chairman Ben Bernanke told Congress late last week the credit crisis has created "significant market stress" and offered fresh assurances that regulators would take steps to curb fallout related to the mortgage mess.
Bernanke made the statement in testimony before the House Financial Services Committee. It came just two days after the Federal Reserve sliced a key interest rate by a bold half-percentage point to prevent the weight of housing and credit problems from sinking the economy. It was the first time in more than four years the Fed cut this rate.
"Global financial losses have far exceeded even the most pessimistic estimates of the credit losses on these loans," the Fed chairman said. The situation, he acknowledged, "has created significant market stress."
The meltdown in the housing and mortgage markets has shaken Wall Street and Main Street, and President Bush was asked at a White House news conference Thursday to assess the chances of a recession. "I say that the fundamentals of our economy are strong," he replied. But the president did acknowledge problems in the housing market.
Bush said he looked forward to working with Congress to solve problems, but also said he would fight any move on Capitol Hill to raise taxes.
For his part, Bernanke promised lawmakers that the Fed will take steps to crack down on abusive or bad lending practices.
"The Federal Reserve takes responsible lending and consumer protection very seriously. Along with other federal and state agencies, we are responding to the subprime problems on a number of fronts," he said. "We are committed to preventing problems from recurring, while still preserving responsible subprime lending." The Fed has taken a number of steps already and other proposals are being considered.
In his testimony, Bernanke did not offer new clues about the Fed's next move on interest rates. The Fed chief reiterated the rationale offered Tuesday for cutting rates, acknowledging that the financial turmoil has "increased the uncertainty to the outlook."
Foreclosures are at record highs and late payments are spiking. Lenders have been forced out of business and investors have taken huge financial hits. Lax lending standards during the housing boom came to roost after the housing bust. The carnage has been the most severe in the subprime market, where mortgages are held by borrowers with spotty credit or low incomes. Many are at risk of losing their homes.
Analysts estimate that at least 2 million adjustable-rate mortgages will jump from very low initial teaser rates to higher rates this year and next. Steep prepayment penalties have made it difficult for some to get out of their mortgages. Some overstretched homeowners can't afford to refinance or even sell their homes.
"Foreclosure isn't good for anyone," said Alphonso Jackson, secretary of Housing and Urban Development, urging lawmakers to move quickly on FHA reform.
Bernanke said he saw "no problem" with government efforts to help squeezed homeowners refinance. "We are trying in particular to make sure the economy is stable and that is the ultimate objective we have," he added.
Bernanke made the statement in testimony before the House Financial Services Committee. It came just two days after the Federal Reserve sliced a key interest rate by a bold half-percentage point to prevent the weight of housing and credit problems from sinking the economy. It was the first time in more than four years the Fed cut this rate.
"Global financial losses have far exceeded even the most pessimistic estimates of the credit losses on these loans," the Fed chairman said. The situation, he acknowledged, "has created significant market stress."
The meltdown in the housing and mortgage markets has shaken Wall Street and Main Street, and President Bush was asked at a White House news conference Thursday to assess the chances of a recession. "I say that the fundamentals of our economy are strong," he replied. But the president did acknowledge problems in the housing market.
Bush said he looked forward to working with Congress to solve problems, but also said he would fight any move on Capitol Hill to raise taxes.
For his part, Bernanke promised lawmakers that the Fed will take steps to crack down on abusive or bad lending practices.
"The Federal Reserve takes responsible lending and consumer protection very seriously. Along with other federal and state agencies, we are responding to the subprime problems on a number of fronts," he said. "We are committed to preventing problems from recurring, while still preserving responsible subprime lending." The Fed has taken a number of steps already and other proposals are being considered.
In his testimony, Bernanke did not offer new clues about the Fed's next move on interest rates. The Fed chief reiterated the rationale offered Tuesday for cutting rates, acknowledging that the financial turmoil has "increased the uncertainty to the outlook."
Foreclosures are at record highs and late payments are spiking. Lenders have been forced out of business and investors have taken huge financial hits. Lax lending standards during the housing boom came to roost after the housing bust. The carnage has been the most severe in the subprime market, where mortgages are held by borrowers with spotty credit or low incomes. Many are at risk of losing their homes.
Analysts estimate that at least 2 million adjustable-rate mortgages will jump from very low initial teaser rates to higher rates this year and next. Steep prepayment penalties have made it difficult for some to get out of their mortgages. Some overstretched homeowners can't afford to refinance or even sell their homes.
"Foreclosure isn't good for anyone," said Alphonso Jackson, secretary of Housing and Urban Development, urging lawmakers to move quickly on FHA reform.
Bernanke said he saw "no problem" with government efforts to help squeezed homeowners refinance. "We are trying in particular to make sure the economy is stable and that is the ultimate objective we have," he added.
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