Bernanke Open to Limiting Lending; Fed Chief Blames Foreclosures on Lax Standards
Federal Reserve Chairman Ben S. Bernanke yesterday blamed loose lending for the recent turmoil in the mortgage market and told Congress that "it's worth looking at" the idea of creating a law against certain lending practices.</br></br>Bernanke, testifying at a hearing of Congress's Joint Economic Committee, said Fed policymakers are likely to hold interest rates steady for a while and are more concerned about high inflation than slow economic growth. Stock prices fell as his comments dispelled many investors' hopes that the central bank was preparing to cut interest rates to bolster a weakening expansion.</br></br>The Fed chairman used the hearing to make his first public remarks on why more Americans are falling behind on their mortgage payments and losing their homes to foreclosure, particularly subprime borrowers with poor credit histories, low incomes, no down payments or other factors that put them at higher risk of default. The hearing comes as Congress is trying to assess the causes and figure out what to do in response.</br></br>Bernanke's testimony was also his first since a Senate Banking Committee hearing last week, at which panel chairman Christopher J. Dodd (D-Conn.) blamed the subprime mortgage mess on a failure of the Fed and other bank regulators to enforce federal lending laws.</br></br>The Fed chairman, without explicitly referring to Dodd's criticisms, countered yesterday that lenders had insufficiently gauged many subprime borrowers' ability to repay mortgages, particularly when their payments increase because of rising interest rates.