Flexibility needed to stem US mortgage crisis: Fed chief
NEW YORK - MR BEN Bernanke, chairman of the United States Federal Reserve, has urged Congress to allow federal agencies more leeway in overseeing the ailing mortgage industry, emphasising that the causes of the current foreclosure crisis were more difficult to address than those in the past.
‘Realistic public- and private-sector policies must take into account the fact that traditional foreclosure avoidance strategies may not always work well in the current environment,’ he said at a Columbia Business School event in midtown Manhattan on Monday.
Mr Bernanke said some regions of the country have experienced sharp rises in the number of home owners who are delinquent on their mortgages, despite data that does not reveal the classic causes of foreclosures, such as higher unemployment rates.
Instead, much of the problem can be attributed to a decline in home prices, which, he said, can ‘reduce the ability and incentive of home owners…to retain their homes’.
The variety of factors leading to foreclosures makes it more difficult for mortgage lenders to help ailing home owners, Mr Bernanke said, noting that ‘lenders and services will have to develop new and flexible strategies to deal with this issue’.
He recommended that government agencies take a more innovative approach to ensure that only qualified buyers take out loans.
He also urged Congress to provide the Federal Housing Administration, which insures mortgage loans, with ‘greater latitude’ in setting appropriate standards for owners seeking to refinance their mortgages, and to adjust interest rates according to the risk level of applicants.
It was this system that went awry in the US sub-prime mortgage crisis, the root of the current economic turmoil. In many cases, mortgages were given to owners who could not afford to repay them, resulting in a wave of foreclosures.
He warned that the rising foreclosure rate, if left unchecked, adds to sagging inventories and can weigh down home prices, which hurts household worth and, ultimately, the health of Wall Street’s biggest banks.
NEW YORK TIMES
Source : Straits Times - 7 May 2008
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