The Economy Is Weathering The Sub-Prime Storm Well
Thursday, May 17, 2007SUSIE GHARIB: Federal Reserve Chairman Ben Bernanke said today the sub-prime mortgage crisis will not threaten the economy. Speaking at a conference of Fed officials in Chicago, Bernanke also called for tighter lending standards. Diane Eastabrook has details from Chicago.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Greeting a banking conference in Chicago this morning, Federal Reserve Chairman Ben Bernanke calmed fears about the sub-prime home loan market. Bernanke said investors are scrutinizing sub-prime loans more carefully now and he doesn't think those loans jeopardize the U.S. economy.
BEN BERNANKE, CHAIRMAN, FEDERAL RESERVE BOARD: Importantly, we see no serious broader spill over to banks or thrift institutions from the problems in the sub-prime market. The troubled lenders, for the most part, have not been institutions with Federally insured deposits.
EASTABROOK: Sub-prime mortgages are typically made to consumers who are perceived to have a higher credit risk. Banking experts say those loans helped to spur growth in home ownership over the past several years. Last year, 69 percent of U.S. households owned homes, compared to 65 percent in 2005. But delinquencies and foreclosures of sub-prime mortgages have been increasing. Experts say rising interest rates have made it hard for consumers with adjustable rate mortgages to pay higher monthly fees, while other consumers have defaulted on loans in the wake of falling home values. Bernanke said the Fed is doing all it can to prevent fraud and abuse among sub-prime lenders and is cautiously looking into tougher regulations.
BERNANKE: Regulators must walk a fine line. We must do what we can to prevent abuses or bad practices but at the same time, we do not want to curtail responsible sub-prime lending or close off refinancing options that would be beneficial to borrowers.
EASTABROOK: Many bank economists here applauded the Fed chairman's remarks. PNC Financial services group chief economist Stuart Hoffman was among them.
STUART HOFFMAN, CHIEF ECONOMIST, PNC FINANCIAL SERVICES GROUP: He wants to have balance between regulatory oversight and market discipline, which has already begun to work, but not to the point where you have some restraint.
EASTABROOK: But Lasalle Bank Corporation chief economist Carl Tannenbaum says there should be consistent state regulation.
CARL TANNENBAUM, CHIEF ECONOMIST, LASALLE BANK: On the other hand, it is true that nationally, we have a polyglot of regulations covering mortgage underwriting and perhaps there is an opening to set certain minimum standards.
EASTABROOK: Bernanke says overall U.S. housing prices still remain firm, providing homeowners with significant equity and keeping most on sound financial footing. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
