Bernake Comments on Mortgage Defaults and Subprime Abuse

May 17, 2007 No Comments »

While speaking at a conference sponsored by the Federal Reserve Bank of Chicago, Bernake fielded questions about the increase in mortgage defaults nationwide, noting that defaults and foreclosures would likely rise throughout the year but probably won’t significantly impair the economy.

He also felt that the emphasis should be on tackling bad lending practices that led to the meltdown, such as mortgage fraud and predatory lending.

At the same, Bernake felt that there were many good borrowers who were facing an underwriting backlash as mortgage lenders nationwide tightened guidelines and denied more new loan applications because of the losses in subprime lending.

He further added that the United States economy would be able to absorb the massive losses related to the mortgage crisis and that the majority of home loans would continue to perform just fine.

Bernake feels that strong job growth and income, coupled with past housing appreciation that has kept house values near record levels should allow the majority of homeowners to manage their mortgage payment, and avoid further financial difficulties.

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