Bernanke Pledges Crackdown on Subprime Mortgages
RENEE MONTAGNE, host:
NPR's Business News starts with containing the damage of the housing slump.
The housing market will continue to suffer this year, with tighter subprime mortgage loans and more foreclosures. That's according to Federal Reserve chairman Ben Bernanke. But he also insists that the housing slump won't seriously harm overall economic growth.
NPR's Jack Speer reports.
JACK SPEER: Speaking in Chicago yesterday, Bernanke acknowledged defaults and foreclosures will continue to rise this year and into 2008, but he said he expects most homeowners will weather the storm.
Mr. BEN BERNANKE (Chairman, Federal Reserve): The vast majority of mortgages, including even subprime mortgages, continue to perform well. Past gains in house prices have left most homeowners with significant amounts of home equity, and growth in jobs and income should help keep the financial obligations of most households manageable.
SPEER: While many in the audience probably found those words reassuring, Bernanke did not downplay the fallout in the subprime markets. He pointed out that nationwide foreclosures increased to 300,000 in the fourth quarter of last year. More than half of them involved subprime loans.
He said there were many causes - loose underwriting standards, the increased popularity of adjustable rate loans and falling house prices in some areas. The Fed will hold hearings in coming weeks on what actions regulators should take to prevent a reoccurrence. But Bernanke also noted credit markets are already adjusting tightening lending standards.
Mr. BERNANKE: Markets can overshoot, but ultimately market forces work to rein in excesses. For some, the self-correcting pullback may seem too late and too severe, but I believe that in the long run markets are better than regulators at allocating credit.
SPEER: But several lawmakers on Capitol Hill took exception to Bernanke's remarks, among them Connecticut Democrat Chris Dodd, who chairs the Senate Banking Committee. He said the Fed needs to move quickly to establish new federal standards for home loans.
Jack Speer, NPR News, Washington.
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