Bernanke Urges Flexibility in Mortgage Regulation

New York Times (05/06/08) P. C5; Grynbaum, Michael M.
Speaking at a recent Columbia Business School event, Federal Reserve Chairman Ben Bernanke said federal agencies need more flexibility to curtail rising foreclosures, given that today's foreclosures are not being caused by increasing unemployment rates and other traditional causes. With falling residential prices and large numbers of speculators with little incentive to hang onto their properties increasingly responsible for foreclosures, Bernanke said conventional workout tactics may not be suitable and that more flexible strategies need to be created by lenders and servicers. He urged Fannie Mae and Freddie Mac to generate more money for foreclosure avoidance programs, and he said Congress should allow the FHA to impose "appropriate" refinancing standards and give the agency the ability to set interest rates based on risk. If steps are not taken to address rising foreclosure rates, Bernanke warned that housing inventory would rise, home prices would fall further and households and Wall Street banks would face even greater financial losses.