FDIC Chairman Sheila Bair on Thursday suggested that the government guarantee mortgages as a means of avoiding foreclosures, a move that could help banks and homeowners.
Bair told the Senate Banking Committee that the Federal Deposit Insurance Corp. is working with the Treasury to establish standards for modifying loans and providing guarantees for loans that meet the standards.
"By doing so, affordable loans could be converted into loans that are sustainable over the long term," she told lawmakers.
Meanwhile, former Federal Reserve Chairman Alan Greenspan, who testified before a House panel, predicted the financial crisis would get worse before it gets better. Greenspan described the crisis as a "once-in-a-century credit tsunami."
Foreclosures Up Sharply
Earlier in the day, a new report showed that homeowners are, indeed, in need of help. U.S. foreclosure filings soared 71 percent in the third quarter compared with the same period in 2007, data released by RealtyTrac Inc. showed.
Nearly 766,000 homes across the country received at least one foreclosure-related notice from July through September. RealtyTrac experts predicted that more than 1 million bank-owned properties will be on the market — about a third of all properties for sale in the U.S — by the end of the year.
California, Florida, Arizona, Ohio, Michigan and Nevada accounted for more than 60 percent of all foreclosure activity in the quarter, with California alone making up more than a quarter of all foreclosure filings.
The huge number of foreclosures and the resulting credit crisis also had an impact on home prices. The Federal Housing Finance Agency's House Price Index released Thursday showed that home prices fell 5.9 percent for the 12 months that ended in August, along with a cumulative decline of 6.5 percent since prices peaked in April 2007.
As the worsening economic crisis has seen revenues plummet, many companies have also announced layoffs. Goldman Sachs Group Inc. announced Thursday that it will reduce its workforce by 10 percent, or 3,200 jobs.
Jobless Benefit Claims Remain High
Greenspan warned Congress more layoffs are likely — a fear borne out by new jobless figures released Thursday.
The Labor Department reported that jobless claims increased by more than expected last week as companies cut jobs owing to the slowing economy.
The department said new applications for unemployment benefits rose 15,000 to a seasonally adjusted 478,000, slightly above analysts' estimates of 470,000.
The total indicates that labor markets remain weak as companies lay off workers and cut back on hiring. Jobless claims above 400,000 are considered a sign of recession. A year ago, claims stood at 333,000, the department said.
Greenspan Criticizes Banks
As bad economic news continued to be released during the day, federal regulators testified on Capitol Hill.
Greenspan told the House Oversight Committee that his belief that banks would be more prudent in their lending practices because of the need to protect their stockholders had proved to be wrong.
Treasury Interim Assistant Secretary Neel Kashkari, Housing and Urban Development Assistant Secretary Brian Montgomery, Federal Reserve Gov. Elizabeth Duke and Federal Housing Finance Agency Director James Lockhart were also set to testify about the economic crisis before the Senate Banking Committee on Thursday.
From NPR and wire reports