Fed Chairman Ben Bernanke's Push for More Federal Reserve Power
Tuesday, July 08, 2008SUSIE GHARIB: Ben Bernanke said today he wants Congress to give the Federal Reserve more power. Speaking at a mortgage lending conference in Washington, the Fed chairman said the U.S. financial markets need to be more resilient and stable. He proposed giving the central bank a bigger role in supervising the nation's investment firms. Bernanke also wants the government to create a new system to ensure that financial firms can fail without damaging the entire economy. And he said the Fed may extend its emergency loan program for Wall Street firms into next year. Well, at that same conference today, regulators also outlined new ways to fix the subprime mortgage mess. Stephanie Dhue reports.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The FDIC brought together a who's who of financial market leaders. The goal -- encourage lenders to make affordable mortgages to low-income borrowers now that the subprime market has imploded. FDIC Chairman Sheila Bair says the first step is restoring confidence in the mortgage market.
SHEILA BAIR, CHAIRMAN, FDIC: We need to bring the private investment community back in to support funding for mortgages for low and moderate income people. We need to make sure that lending is done the right way, it's done responsibly, it's affordable, it's sustainable, it helps people accumulate wealth, not strip wealth.
DHUE: Next week, the Federal Reserve will release new rules governing future subprime loans that could require lenders to be sure borrowers can repay the loans; hidden fees be disclosed; and escrow amounts for taxes and insurance payments be withheld. Fed Chairman Ben Bernanke says the new rules will apply to all lenders.
BEN BERNANKE, CHAIRMAN, FEDERAL RESERVE: These new rules will address some of the problems that have surfaced in recent years in mortgage lending, especially for high-cost mortgage lending.
DHUE: As for the next generation of subprime loans, other regulators would like to see an end to 100 percent financed loans; an emphasis on fixed-rate loans; and the use of 40-year mortgages to lower monthly payments without the payment shock of adjustable loans. The market has gone back to basic lending practices, requiring 20 percent downpayments and fully documented loans. JPMorgan Chase CEO Jamie Dimon says it will take some time for lenders and investors to take on more risk.
JAMIE DIMON, CHAIRMAN & CEO, JPMORGAN CHASE: When they say a cat who sits on a hot tin plate will never sit on a hot tin plate again, but it also won't sit on a cold tin plate. And that's the problem we have. People have been really badly burned.
DHUE: Many home buyers are also feeling burned. Affordable housing advocate Martin Eakes expects it to be another year or two before home prices stabilize.
MARTIN EAKES, CEO, CENTER FOR RESPONSIBLE LENDING: So, for me, right now, I advise many aspiring homeowners to wait a year, save their money, rent. But don't jump in when your entire life savings could be wiped out by just the natural force of the marketplace.
DHUE: What's unknown is how far home prices will fall and how bad the economy will get. That's likely to keep many buyers and investors on the sidelines for now. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
