Fed Chairman Bernanke Forecasts More Foreclosures
Tuesday, March 04, 2008SUSIE GHARIB: Also weighing on the markets today, a warning from the chairman of the Federal Reserve that he expects more home foreclosures. Ben Bernanke told a community bankers' conference that the turmoil in the housing market calls for a vigorous response. Meanwhile, lawmakers on Capitol Hill questioned why so many bad loans were made in the first place. Stephanie Dhue reports.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: On Capitol Hill today, lawmakers demanded to know how regulators missed the signs that banks were making bad loans. Fed Vice Chairman Donald Kohn admits the central bank could have done better.
DONALD KOHN, VICE CHAIRMAN, FEDERAL RESERVE BOARD: We tried to warn people in speeches and in conversations that we thought risk wasn't -- that they were taking risks and not being appropriately rewarded for them or controlling them. We tried to work with the banks, but I think it's quite possible that we could have been more forceful.
DHUE: Fed Chairman Ben Bernanke took a more forceful approach in a speech today to community bankers. He called on lenders to do more to prevent foreclosures, including cutting a homeowners' mortgage amount with the bank taking the loss.
BEN BERNANKE, CHAIRMAN, FEDERAL RESERVE: In this environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure.
DHUE: So far, lenders have been reluctant to do that. Senate Finance Committee Chairman Chris Dodd applauds the Fed's new approach.
SEN. CHRIS DODD, CHAIRMAN, SENATE BANKING COMMITTEE: When the chairman of the Federal Reserve gives a speech and talks about being more aggressive in terms of how we deal with this, I welcome those comments. It's something I've been talking about for a year and I think it's also an acknowledgment that this Hope Now Alliance, while maybe doing some good, is not going to be adequate.
DHUE: The Bush administration is also considering more ideas to keep people with no equity in their homes from just walking away from them. FDIC Chairman Sheila Bair says the focus now is getting lenders to voluntarily work out troubled loans.
SHEILA BAIR, CHAIRMAN, FDIC: I think we need to be looking at market- based solutions at this point and keeping the pressure on for servicers to use systematic approaches, not loan by loan approaches to dealing with this and using the full panoply of tools available. Whether it's enough, I don't know.
DHUE: Whether it's enough will depend largely on home prices. If they continue to fall, there is sure to be increased pressure on the government to do more. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
