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Thread: Bernanke says risky mortgage problems not spreading to broader economy

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    Default Bernanke says risky mortgage problems not spreading to broader economy

    March 28, 2007, 6.22 am (Singapore time)

    Subprime woes spread


    NEW YORK - A senior US Federal Reserve staff member warned on Tuesday that subprime mortgage market troubles could last as long as two years, while a leading home builder posting a huge profit plunge blamed subprime lending problems for worsening a soft housing sector.

    Further underscoring the troubles in the US housing sector, economic data showed home prices fell at the start of this year while consumer confidence waned in March, at least partly due to worries about real estate.

    Sandra Braunstein, director of the Fed's division of consumer and community affairs, said problems with subprime mortgages, which are held by less credit-worthy borrowers, could persist for some time.

    'Although there are some indications that the market is correcting itself, we remain concerned that over the next one to two years, existing subprime borrowers ... may face more difficulty,' she told a House of Representatives subcommittee in a hearing.

    Borrowers with already weakened credit are likely to be slammed further when their adjustable-rate mortgages reset to higher payments.

    Delinquency and foreclosure rates will mount, she said in remarks prepared for a financial institutions subcommittee hearing. The Fed is reviewing its regulation on mortgage cost disclosures, she said.

    The head of the Federal Deposit Insurance, a major bank regulator, and lawmakers on Tuesday also called for a national standard to crack down on predatory lending, which is seen as a primary cause of the subprime mortgage crisis.

    Democrats in Congress are holding several hearings on predatory lending, the subprime mortgage crisis and its impact on the secondary mortgage market before unveiling legislation to deal with the matter. The House subcommittee hearing is the first of these.

    Economists say tighter lending standards could choke off the ability of borrowers with compromised credit to take out new home loans, and thus dampen the broader economy. Home builders already are feeling the pinch from the subprime problems.

    Lennar Corp, the No. 3 US home builder, on Tuesday reported a 73.4 per cent profit plunge for the quarter ended Feb 28, saying widening problems in the subprime sector stifled an already soft housing market.

    The subprime meltdown is being worsened by a lack of home price appreciation -- and in some cases home price declines. -- REUTERS


    Click here for the testimony by Director Braunstein on subprime mortgages
    http://www.federalreserve.gov/boardd...27/default.htm

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    Default Bernanke says risky mortgage problems not spreading to broader economy

    March 28, 2007, 10.52 pm (Singapore time)

    Bernanke says risky mortgage problems not spreading to broader economy

    WASHINGTON - Federal Reserve chairman Ben Bernanke told Congress on Wednesday that growing troubles in the market for risky mortgages thus far do not appear to be spreading to the overall US economy but the situation bears close watching.

    'At this juncture ... the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained,' Mr Bernanke said in prepared testimony to Congress' Joint Economic Committee.

    It marked his most extensive discussion yet of the mounting problems in the risky mortgage market. Those troubles raise 'some additional questions about the housing sector', which has been mired in a deep slump for more than a year, Mr Bernanke said.

    Fallout in the risky mortgage market is clobbering some lenders and homeowners and has stoked concerns on Wall Street, Capitol Hill and elsewhere.

    So-called 'subprime' lenders who make home loans to people with blemished credit histories or low incomes have been battered. Weak home prices and rising interest rates have made it increasingly difficult for borrowers to keep up with their payments. Delinquencies and foreclosures in the subprime mortgage market are soaring.

    'Although the turmoil in the subprime mortgage market has created financial problems for many individuals and families, the implications of these developments for the housing market as a whole are less clear,' Mr Bernanke said.

    The crumbling housing market has been a major factor behind the slowdown in the US economy. Mr Bernanke said the 'near-term prospects for the housing market remain uncertain'.

    Even so, he stuck with the Federal Reserve's assessment that the economy is likely to grow at a moderate pace over the coming quarters. He also repeated the Fed's belief that inflation also should ease in the months ahead. -- AP

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    Default US economy likely to grow at moderate pace: Bernanke

    Published March 29, 2007

    US economy likely to grow at moderate pace: Bernanke


    (WASHINGTON) US Federal Reserve chairman Ben Bernanke told Congress yesterday that growing troubles in the market for risky mortgages thus far do not appear to be spreading to the overall US economy, which was likely to grow at a moderate pace.

    'At this juncture . . .the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained,' Mr Bernanke said in testimony to Congress' Joint Economic Committee.

    It marked Mr Bernanke's most extensive discussion yet of the mounting problems in the risky mortgage market. Those troubles raise 'some additional questions about the housing sector', which has been mired in a deep slump for more than a year, Mr Bernanke said.

    Fallout in the risky mortgage market is clobbering some lenders and homeowners and has stoked concerns on Wall Street, Capitol Hill and elsewhere.

    So-called 'subprime' lenders who make home loans to people with blemished credit histories or low incomes have been battered. Weak home prices and rising interest rates have made it increasingly difficult for borrowers to keep up with their payments. Delinquencies and foreclosures in the subprime mortgage market are soaring.

    'Although the turmoil in the subprime mortgage market has created financial problems for many individuals and families, the implications of these developments for the housing market as a whole are less clear,' Mr Bernanke said.

    The crumbling housing market has been a major factor behind the slowdown in the US economy. Mr Bernanke said the 'near-term prospects for the housing market remain uncertain'.

    Even so, Mr Bernanke stuck with the Fed's assessment that the US economy is likely to grow at a moderate pace over the coming quarters. He also repeated the Fed's belief that inflation also should ease in the months ahead.

    To be sure, Mr Bernanke was careful to hedge the Fed's economic bets. The housing slump could turn out to be worse than expected, perhaps exacerbated by problems in the market for risky mortgages, he said. Recent weakness in business investment also could persist, he added. Those forces could further dampen economic growth.

    On the other hand, consumers which proved 'quite resilient' despite the housing slump and increases in energy prices, could continue to keep spending at a pace that would make the economy grow faster than currently expected, he said. And there are other forces, including a still-good jobs market that is producing fatter pay cheques, that could push up inflation.

    The Fed chief's testimony comes amid fresh questions about the health of the US economy, given problems with subprime mortgages, stock market turbulence and worries about the severity of the housing slump.

    Against this backdrop, Democratic Senator Charles Schumer, chairman of the Joint Economic Committee, and some other lawmakers said the Fed should be open to cutting interest rates.

    'Another reason to be open to an easing of monetary policy is the concern that the housing market adjustment is far from over,' Mr Schumer said. 'Recent housing data has offered little encouragement that the market might be stabilising. So it is still too early to tell if the worst is over for the housing market,' he added.

    There are some fears that consumers - whose confidence is sagging - and businesses could clamp down on spending and investing, thus short-circuiting overall economic growth. Rising prices for gasoline and other items also are raising concerns about inflation. These economic cross-currents can complicate the Fed's job of trying to keep the economy and inflation on an even keel. - AP

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    Default Re: Bernanke says risky mortgage problems not spreading to broader economy

    March 29, 2007, 6.20 am (Singapore time)

    Bernanke allays subprime fears

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    NEW YORK - Testimony by the two top US economic officials Wednesday raised fresh concerns in financial markets about the deteriorating housing market, despite their view that subprime mortgage problems are 'contained'.

    The financial markets' worst fear has been that problems with subprimes -- loans aimed at borrowers with weak credit -- will spill into the overall housing sector and push the slowing economy into reverse.

    Federal Reserve Chairman Ben Bernanke said in testimony to Congress that the impact of the problem has been 'moderate' in the big picture, and US Treasury Secretary Henry Paulson said the problem 'appears to be contained'.

    Mr Paulson, testifying before a House Appropriations subcommittee, said the Treasury was monitoring housing market developments closely but was encouraged by signs that the housing downturn was at or near a bottom.

    However, the Treasury chief said he had 'grave concern' for the many Americans who will be adversely affected by the resetting of adjustable rate subprime mortgages.
    Related article:

    Click here for Chairman Ben Bernanke's testimony on the economic outlook

    Mr Bernanke said the tighter credit conditions taking over in the subprime market are desirable because they will counter excessively lax vetting of applicants.

    The practices of lenders in the US$1 trillion subprime sector have drawn scrutiny from regulators and law enforcement officials who believe some borrowers have been fraudulently induced to take on more debt than they can handle.

    While most of the activity has involved civil actions, the No. 6 home builder in the country, Beazer Homes USA, said it has received a request for documents from federal prosecutors in a probe relating to its mortgage business, sending its shares down as much as 11.8 per cent.

    The builder specialises in lower-priced homes, the sector of the market where subprime lending has been most prevalent. The FBI said it was looking at 'a potential fraud investigation' into Beazer.

    In a sign of deepening problems at one of the biggest subprime lenders, New Century Financial Corp, said it had voluntarily terminated its relationship with Freddie Mac and that 'several' of its own lenders plan to sell loans that had backed US$17.4 billion of credit lines.

    The Irvine, California-based company also said it has entered agreements with regulators in Idaho, Iowa, Michigan and Wyoming to stop lending, following similar agreements with or orders from several other states. The developments may move New Century closer to bankruptcy, an outcome many analysts already expect.

    While Mr Bernanke saw no signs of a contagion, he told Congress that housing was the principal source of a slowdown in economic growth that began last spring. His comments suggest the central bank will continue to keep a watchful eye on the housing market and will pay particular attention to the key spring housing market.

    Borrowers are increasingly avoiding adjustable-rate home loans. The latest data from the Mortgage Bankers Association showed applications for fixed-rate mortgages are up 30 per cent year-over-year while applications for adjustable-rate mortgages are down by 18 per cent. -- REUTERS

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    Default Housing woes 'will slow US growth, but no recession likely'

    March 29, 2007, 11.12 pm (Singapore time)

    Housing woes 'will slow US growth, but no recession likely'


    THE HAGUE, Netherlands - Fallout from defaults on risky mortgages and a housing slump will slow US growth in 2007, but the economy is headed for a 'soft landing' and will likely begin a recovery in early 2008, the International Monetary Fund's director said on Thursday.

    Rodrigo de Rato's comments to reporters in The Hague echoed those of Federal Reserve Chairman Ben Bernanke in his testimony to Congress' Joint Economic Committee a day earlier.

    Mr De Rato said the IMF would likely cut its 2007 growth estimates for the US economy when it next publishes its World Economic Outlook in mid-April from the 2.9 per cent it had forecast last September.

    It put global growth at 4.9 per cent.

    'We probably will see certain lesser growth (in the United States) than we saw in September,' he said, adding that the change would not be 'dramatic'.

    But the IMF's central scenario for the US in 2007 is 'still for what you could call a soft landing', he said.

    'We think that the effect of the housing sector is a limited one because employment figures and income for families is very strong,' he said. 'It is clear that (housing woes) will not affect the overall stability of the financial sector in the United States.'

    He said the IMF will closely monitor whether US consumer spending weakens as a result of the housing sector problems.

    Weak home prices and rising interest rates have hit people with bad credit or low incomes hardest - and the banks that lend to them - and delinquencies and foreclosures in the 'subprime' market are soaring.

    Mr De Rato's comments came as US data showed the economy grew at a sluggish 2.5 per cent pace in the final quarter of last year. -- AP

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    Default Bernanke rejects ex-Fed chief's economic view

    March 30, 2007

    Bernanke rejects ex-Fed chief's economic view


    NEW YORK - MR BEN Bernanke has promised greater transparency and on Wednesday made one thing clear: The chairman of the US Federal Reserve does not agree with his former boss on the economic outlook.

    For several weeks now, former Fed chief Alan Greenspan had been upstaging Mr Bernanke with his musings about the risks of a recession this year, rattling already nervous markets.

    It was clear on Wednesday, however, that Mr Bernanke is not taking cues from the Maestro.

    Mr Greenspan said late last month that a United States recession was possible, explaining: 'When you get this far away from a recession, invariably forces build up for the next recession, and indeed we are beginning to see that sign.'

    He added that 'in the US, profit margins...have begun to stabilise, which is an early sign we are in the later stages of a cycle'.

    But on Wednesday, Mr Bernanke said expansions have no discernible timeframe and the business cycle is no longer on a fixed schedule.

    'There seems to be a sense that expansions die of old age, that after they reach a certain point, then they naturally begin to end,' Mr Bernanke told the congressional Joint Economic Committee, in answering a question about Mr Greenspan's opining about recession risks. 'I don't think the evidence really supports that.'

    Mr Bill Gross, chief investment officer at Pacific Investment Management, said in an interview with Reuters that Mr Bernanke is 'reflecting the importance of the global economy and the potential influence of non-US growth on our exports and therefore its ability to support a 'typical' business downturn'.

    REUTERS

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