Fed Chairman Ben Bernanke said Monday in a dinner speech to Columbia Business School that "High rates of delinquency and foreclosure can have substantial spillover effects on the housing market, the financial markets, and the broader economy." He added, "Therefore, doing what we can to avoid preventable foreclosures is not just in the interest of lenders and borrowers. It's in everybody's interest."
Bernanke called on Congress to give the Federal Housing Administration more flexibility to help borrowers at risk of losing their homes. He also called for a strengthening of government sponsored mortgage finance enterprises Fannie Mae and Freddie Mac. "Finding ways to avoid preventable foreclosures is a legitimate and important concern of public policy," he said.
Bernanke's comments must be viewed against the backdrop of a bill passed last week by a congressional panel, which would enable the government to finance $300 billion in distressed mortgages. The bill is supposed to prevent 2 million foreclosures. But the Bush Administration is opposed to the measure saying that the burden of the bailout will fall on the ordinary taxpayer if a significant part of the loans refinanced by the government go bad.
It is exactly this attitude of the White House that has invited criticism from everybody. The Democrats have claimed time and again that the Bush administration has been willing to consider policies that help companies and not troubled homeowners. They are quick to point out that the economic policies followed by the present government have only benefited big business and the rich, while ignoring the common man.
Now it seems that Bernanke too is saying that the Democrats may well have a point. Although he stopped short of endorsing the bill in his speech, his message is loud and clear. Act now or it may be too late.