Federal Reserve chief Ben Bernanke said today that subprime mortgage losses could hit $100 billion, as he sought to reassure lawmakers that the central bank was working to strengthen lending regulations.
Subprime mortgages are lent to people with patchy credit, a market that has seen a surge in loan defaults recently.
'The credit losses associated with subprime have come to light and they are fairly significant,' Bernanke told the Senate Banking Committee in a second day of testimony on the Fed's twice-yearly economic report.
'Some estimates are in the order of between $50 billion and $100 billion of losses associated with subprime credit problems,' he said.
Bernanke said that the most reliable indicators show US home prices have not declined nationally and that the housing slump had so far not led US consumers to cut back on spending.
He said, however, that if prices did drop, consumers might trim spending.
As a result of the weaker-than-expected housing sector, the Fed has lowered its growth forecasts for this year and next, but the bank also believes the drag should ease over time.
Bernanke outlined steps the Fed has taken or plans to take to ensure that the subprime problems do not recur, but sharp questions from members of the committee showed some lawmakers think the Fed was not acting swiftly enough as foreclosure rates soar.
He testified that the central bank was progressing as fast as it responsibly could.
Yesterday Bernanke said that licensing mortgage brokers could be a good idea and he promised to institute new rules on mortgage loans within six months.
