Bernanke sees upside of subprime mess

The troubled subprime sector will have only a limited impact on the economy, said the Fed chief in Chicago.

The troubled subprime sector will have only a limited impact on the economy, said Fed chief Ben Bernanke at a conference in Chicago.
Mortgage delinquencies and foreclosures will continue to rise through 2008.
“Curbs on this [subprime mortgage] lending are expected to be a source of some restraint on home purchases and residential investment in coming quarters,” he said.
However, the news isn’t all bad, according to Mr. Bernanke.
Most borrowers are current on their loans, and they might have a little more cash in their pockets thanks to improving home prices and income.
“The vast majority of mortgages, including even subprime mortgages, continue to perform well,” said Mr. Bernanke.
“Past gains in house prices have left most homeowners with significant amounts of home equity.”
Growth in jobs and earnings should also allow households to manage their finances, he said.
The Federal Reserve will also fight the abusive lending practices and fraud that created the subprime mess, being careful not to disrupt responsible lending and refinancing for borrowers.
“[R]egulators must walk a fine; we must do what we can to prevent abuses or bad practices, but at the same time we do not want to curtail responsible subprime lending or close off refinancing options that would be beneficial to borrowers,” Mr. Bernanke said.
He did not specify what initiatives the Fed would be using.
The regulatory agency will hold a public hearing next month on the matter.