Transcripts

Fed Chairman Ben Bernanke Fields Lawmaker Questions About Sub-Prime Loans

PAUL KANGAS: As he wrapped up that testimony, Fed Chairman Ben Bernanke was grilled by lawmakers on the Senate Banking Committee. One of their biggest concerns: the rising number of mortgage delinquencies and foreclosures on sub-prime loans. As Stephanie Dhue reports, lawmakers used the forum to press the Fed chief to do more to protect consumers.

STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Federal Reserve Board Chairman Ben Bernanke received both praise and condemnation for the Fed's regulation of the mortgage market. Some lawmakers applauded the Fed's recent steps to curb abusive lending practices, but New Jersey Senator Robert Menendez blasted the agency for doing too little too late.

SEN. ROBERT MENENDEZ (D) NJ: We could have been more proactive in this process and it seems to me we're coming to the table with a plan after a tornado has already ripped through a community.

DHUE: Bernanke sought to assure lawmakers the Fed is doing everything it can to protect consumers from being taken advantage of.

BEN BERNANKE, CHAIRMAN, FEDERAL RESERVE: I asked for a top-to-bottom review. We looked at every possible power that we have. We have examined each one. We have had a lot of input, a lot of hearings and we are moving forward.

DHUE: Bernanke says the central bank will require improved loan disclosure statements by the end of the year. It is also considering new regulations that would apply to all financial institutions, including restricting so-called liar loans by requiring lenders verify a borrower's income. It would also restrict the use of prepayment penalties and require lenders to include taxes and homeowners insurance in a borrower's monthly payment. But some lawmakers want to do more to protect consumers. Senator Charles Schumer has proposed legislation that would regulate mortgage brokers and require them to put borrowers in suitable mortgages. Bernanke says a suitability standard should be linked to the borrower's ability to repay a loan.

BERNANKE: If you think of suitability as requiring the lender to pick the very best of the dozens of products available for the borrower, that may be setting a standard which is not actually viable. Perhaps another way of thinking about it is equating suitability with affordability.

DHUE: Bernanke says even though sub-prime losses could reach $100 billion, those problems shouldn't spill over into the broader economy or destabilize the financial system. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.