WASHINGTON - To prevent a repeat of the current mortgage mess, U.S. Federal Reserve Chairman Ben Bernanke said Tuesday that the central bank will issue new rules next week aimed at protecting future homebuyers from dubious lending practices.
The new rules will crack down on a range of shady lending practices that has burned many of the nation’s riskiest “subprime” borrowers — those with spotty credit or low incomes — who were hardest hit by the housing and credit debacles.
The housing, credit and financial crises have bruised the economy. Growth has slowed and employers have cut jobs every month so far this year.
In prepared remarks to a mortgage-lending forum in Arlington, Va., Bernanke said that “it is unrealistic to hope” that financial crises can be entirely eliminated, while maintaining an innovative financial system. “Nonetheless, recent experience has illustrated once again that financial instability can have serious economic costs,” he said.
Meanwhile, the Federal Reserve is also considering giving squeezed Wall Street firms more time to draw emergency loans directly from the central bank to help them overcome credit problems, Bernanke said.
In an extraordinary action, the Fed in March agreed to let investment houses go to the Fed — on a temporary basis — for a quick, overnight source of cash. Those loan privileges, which are supposed to last through mid-September, are similar to those permanently afforded to commercial banks for years.
“We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end should the current unusual and exigent circumstances continue to prevail in dealer funding markets,” Bernanke said.
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