Bernanke Urges More Action on Housing Crisis

New York, NY, May 6, 2008--Federal Reserve Chairman Ben Bernanke warned Monday that the growing number of late mortgage payments and home foreclosures are dangerous for the national economy, and he urged Congress to take more action.

"High rates of delinquency and foreclosure can have substantial spillover effects on the housing market, the financial markets and the broader economy," Bernanke said in a dinner speech to Columbia Business School in New York. "Therefore, doing what we can to avoid preventable foreclosures is not just in the interest of lenders and borrowers. It's in everybody's interest."

About 1.5 million U.S. homes entered into the foreclosure process last year, up 53 percent from 2006, Bernanke said. The rate of new foreclosures may be even higher this year, he said.

Bernanke again urged Congress to give the Federal Housing Administration, which insures mortgages, more flexibility to help borrowers at risk of losing their homes. He also again urged lawmakers to pass legislation to revamp Fannie Mae and Freddie Mac, which finance mortgages. And, he called on the two mortgage giants to quickly raise new capital.

"Conditions in mortgage markets remain quite difficult," the Fed chief said.

Bernanke said the reasons for growing late payments and foreclosures can vary and solutions should take those differences into account.

For instance, parts of New England, states in the Great Lakes, including Minnesota, Michigan and Wisconsin, show increased mortgage delinquencies and "notable increases" in unemployment rates, he said.

However, California, Florida and parts of Colorado saw delinquencies rise when unemployment generally fell but the value of homes declined, he said.

"A widespread decline in home prices, by contrast, is a relatively novel phenomenon, and lenders and servicers will have to develop new and flexible strategies to deal with this issue," Bernanke said.