GoFuckYourself.com - Adult Webmaster Forum - Bernanke: Fed Acting on Abusive Loans

WASHINGTON -- Federal Reserve Chairman Ben Bernanke offered lawmakers fresh assurances on Thursday that regulators are taking steps to better protect would-be homeowners from abusive mortgage practices.

Bernanke appeared before the Senate Banking Committee in his second straight day on Capitol Hill, where he delivered the Fed's midyear economic assessment.

He repeated the Fed's belief that the economy will grow gradually this year, restrained somewhat by the housing slump. Even so, the threat that inflation won't recede as anticipated remains the Fed's biggest worry.

On the housing front, there have been growing problems for borrowers with spotty credit histories that hold higher-risk subprime mortgages. That has rattled investors and irked some lawmakers, who criticize the Fed and other regulators for lax oversight.

Late payments and foreclosures are spiking for homeowners with these subprime mortgages, especially those with adjustable rates. Bernanke acknowledged those problems are "likely to get worse before they get better."

The subprime meltdown has forced more than 30 lenders, including New Century Financial Corp., into bankruptcy.

"A lot of the subprime mortgage paper is not, you know, as good as was thought originally," Bernanke told the panel. He predicted "significant financial losses" associated with delinquencies on these mortgages. Some estimates are that subprime-related credit losses could be anywhere from $50 billion to $100 billion, he said.

The Fed, Bernanke said, is conducting a thorough review of possible actions to help consumers and would-be homeowners and prevent problems from recurring. He said the Fed is committed to providing more effective disclosures to help consumers defend against improper lending. The Fed also is looking at new rules in several areas, including restrictions on loans that don't require proof of a borrower's income and limitations on financial penalties for borrowers who make early payments.

The committee's chairman Sen. Chris Dodd, D-Conn., welcomed these steps.

"I trust and expect that it will result in significant action by the Fed to ensure that every American who seeks to buy a home will receive fair, reasonable and responsible treatment by his or her lender," Dodd said.

Even with these efforts, some senators believe Congress probably needs to step in.

"I don't think consumers will truly be safe until we enact tougher laws to prevent the subprime mess from happening again," said Sen. Charles Schumer, D-N.Y.

Sen. Richard Shelby, R-Ala., said he is worried that problems in the subprime mortgage market won't stay contained and will spread. Bernanke has previously said he doubted that subprime problems would seriously spill over to the broader economy or the financial system.