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 Against this backdrop, the Fed and other banking regulators, the Bush administration and Capitol Hill are scrambling to provide relief.
Proposals in Congress would expand federal backing of mortgages. The House on Tuesday passed legislation that would give more leeway to the Depression-era Federal Housing Administration, which insures mortgages for low- and middle-income borrowers. The Senate has its own bill. The administration, meanwhile, is working with the FHA to help squeezed homeowners.
Bush said at a White House news conference Thursday "there is no question" these are "some unsettling times" in the housing and credit markets. "That's why I look forward to working with Congress to modernize the FHA loans so that people can refinance their homes."
Treasury Secretary Henry Paulson, who also appeared at the House hearing, signaled that the administration would consider allowing the mortgage giants Fannie Mae and Freddie Mac to temporarily buy, bundle and sell as securities any loans exceeding $417,000, known as "jumbo" loans.
The idea, which represents a policy change for the administration, is portrayed as an important way to pump cash into the jumbo loan market, which has been hard hit by the credit crunch.
Paulson stressed such a change could occur only in tandem with tighter oversight of Fannie Mae and Freddie Mac. A few years ago, the two mortgage giants suffered multibillion-dollar accounting scandals. Bernanke also said any leeway given to buy jumbo loans should only be provided on a temporary basis.
The top executives at Freddie Mac and Fannie Mae testified that they stood ready to help cushion the shocks from a rising flood of mortgage foreclosures.
Daniel Mudd, head of Fannie Mae, said his company continued to support an increase in its mortgage portfolio of 10 percent, much bigger than the 2 percent bump-up the mortgage giants' regulatory agency approved Wednesday.
"I am confident we could provide more liquidity help to the home finance market today without taking risks we are not capable of managing," Mudd said. "We are not the only answer to the liquidity crunch, but we can play a part in a measured, safe and sound way," he added.
Richard Syron, Freddie Mac's chief said: "We remain very dedicated to helping borrowers avoid foreclosures."
The panel's chairman, Rep. Barney Frank, D-Mass., supports giving more leeway to the FHA as well as to Fannie Mae and Freddie Mac to help ease the credit crunch.
"I think there's a general agreement that investors, having once been too reckless, are now, to some extent, too cautious, and this isn't going to go away instantly," Frank said.
The biggest fear is the ill effects of the housing slump and credit crunch will throw the economy into recession.
Hoping to prevent that from happening, the Federal Reserve on Tuesday sliced a key interest rate by a bold half-percentage point. It was the first time in more than four years the Fed cut this rate. Bernanke didn't offer new clues about the Fed's next move. Some economists, however, predict another rate reduction will come at the Fed's next meeting in late October.
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 Bush, meanwhile, believes the country will weather the financial storm.
"I'm optimistic about our economy," he said.
Lax lending standards during the housing boom came to roost after the housing bust. The carnage has been the most severe in the so-called "subprime" market, where mortgages are held by borrowers with spotty credit or low incomes. Many are at risk of losing their homes.
Analysts estimate that at least 2 million adjustable-rate mortgages will jump from very low initial teaser rates to higher rates this year and next. Steep prepayment penalties have made it difficult for some to get out of their mortgages. Some overstretched homeowners can't afford to refinance or even sell their homes.
"Economic terrorism is what is going on in this country," said Bruce Marks, head of Neighborhood Assistance Corporation of America, a nonprofit group that promotes affordable homeownership. "Hard working people are not losing their jobs, but they are losing their homes," he said.
The Federal Reserve is conducting a thorough review of possible actions to help consumers and would-be homeowners and prevent problems from happening again in the future.
"We are committed to preventing problems from recurring, while still preserving responsible subprime lending," Bernanke said. For all its problems, subprime lending has been an important factor boosting home ownership in the United States.
Bernanke said the Fed is committed to providing more effective disclosures to help consumers defend against improper lending.
The Fed also is considering 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.
More uniform enforcement in the fragmented market of brokers and lenders also would help protect consumers, Bernanke suggested.
Bernanke's predecessor, Alan Greenspan, has been criticized for holding short-term interest rates too low for too long, feeding the housing boom. Asked if he thought that was the case, Bernanke said the "primary factor" was unusually low, long-term interest rates seen in the United States and in many other countries at the time.
[Associated Press; by Jeannine
Aversa] Associated Press reporters Marcy Gordon and Martin Crutsinger contributed to this story.
Copyright 2007 The Associated Press. All rights reserved. This
material may not be published, broadcast, rewritten or
redistributed.
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