Bernanke urges more action on foreclosures

“Weakness in the housing market has proved a serious drag on overall economic activity,” he said. “Steps that stabilize the housing market will help stabilize the economy as well.”

Fielding questions after his speech, Bernanke didn’t foresee government intervention specifically aimed at boosting sagging home prices.

“I don’t think we would be either willing or able to target house prices. I think that would probably be an impossible thing to do given the size of the national housing market,” Bernanke said.

Instead, the government can take steps to improve the functioning of the mortgage market, which would allow more people to secure home loans and help stabilize the housing market, he said.

The Fed chief’s remarks come as the Treasury Department weighs new plans to revive the moribund housing market.

Under one plan backed by the financial industry, Treasury would seek to lower the rate on a 30-year mortgages to 4.5 percent by purchasing mortgage-backed securities from Fannie Mae and Freddie Mac. It’s unclear exactly how much the plan would cost. It is possible that Paulson will ask Congress for the second $350 billion installment of the $700 billion financial bailout package to bankroll the effort.

Neel Kashkari, the Treasury Department official who is in charge of the $700 billion rescue effort, confirmed Thursday that the plan was one of the options the administration had under review.

But other regulators said such a proposal can only help with part of the problem.

“Getting mortgage rates down is ... positive, but it doesn’t help people that currently have unaffordable mortgages because it doesn’t help them refinance,” said FDIC chief Sheila Bair. “Low interest rates help some consumers, but the ones that really need help and can’t refinance are not helped.”

Rates on 30-year mortgages fell nearly half a percentage point this week to 5.53 percent, the lowest level since January and the largest one-week drop in 27 years, mortgage giant Freddie Mac said Thursday.

Paulson and his Bush administration colleagues have come under fire by Democrats and some Republicans for not doing enough to help Americans at risk of losing their homes.

President-elect Barack Obama signaled a desire Wednesday to use a significant portion of the $700 billion pot to stanch foreclosures. “The deteriorating assets in the financial markets are rooted in the deterioration of people being able to pay their mortgages and stay in their homes,” he said.

Paulson has been opposed to tapping the bailout pool to fund a mortgage-relief program championed by the FDIC’s Bair. The $24 billion FDIC plan would use some of the rescue money to help back refinanced mortgages that would lower monthly payments.

Fed Governor Randall Kroszner, who also spoke to the housing finance conference, said it will take time for investor confidence to be rebuilt in the market for mortgage-backed securities issued by private companies. “The recovery ... is bound to be a gradual process,” he said.

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