November 01, 2008 12:08 am
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WASHINGTON — Federal Reserve Chairman Ben Bernanke said Friday that the housing finance system being constructed following the collapse of the current system will need better safeguards to allow it to function during times of stress.
Whatever shape the new system takes should ensure that the institutions that support the financing of home mortgages do not pose a systemic risk to our financial markets and the economy, Bernanke said in a speech prepared for a housing conference in Berkeley, Calif.
He outlined a number of possible ways to structure housing finance in the future, but did not state his own preferences.
The issue of how financing should be restructured was a good one for policymakers to address during what he called the current “time out” when Fannie Mae and Freddie Mac are both under the control of the federal government, Bernanke said.
The two mortgage giants were placed into conservatorship on Sept. 7, part of a series of events that have unfolded as the biggest financial crisis in seven decades has hit the U.S. economy.
Speaking about the credit crisis that started in August 2007, Bernanke said it began with the end of a prolonged housing boom in the U.S. that exposed “serious deficiencies in the underwriting and credit rating” for mortgages, particularly subprime mortgages, loans made to borrowers with weak credit histories.
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