Bernanke Comments Welcome News for Mortgage Shoppers

By Richard Barrington Columnist

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Recent comments by Federal Reserve Chairman Ben Bernanke cautioned against overreacting to problems with subprime mortgages. Bernanke's comments signaled support for continuing home loans to people with weak credit histories, in the form of both original mortgages and refinancing opportunities.

There have been concerns that home loan opportunities to people with damaged credit would be sharply curtailed. In Bernanke's view, despite the problems with subprime mortgages, doing away with them would do more harm than good. This is welcome news to potential subprime borrowers seeking a new home loan or planning on refinancing an existing mortgage.

Reaction to Subprime Mortgage Foreclosures

Subprime loans are those made to borrowers with poor credit histories. Rising foreclosure rates among subprime loans have raised concerns for both lenders and borrowers. The concern for lenders is that defaults can become so financially onerous that it prevents them from making future loans. The concern for borrowers stems from stories that some have overextended themselves with mortgages and home equity loans they cannot afford.

Beneficial Impacts of Subprime Borrowing

Despite these well-documented problems, Bernanke's recent comments cautioned against over-regulating the subprime sector. "We must be careful not to inadvertently suppress responsible lending or eliminate refinancing opportunities for subprime borrowers," cautioned the Fed Chairman.

After all, foreclosures still represent a minority of subprime loans, meaning that more often than not those loans work for borrower and lender alike. The rise in subprime lending over the past several years has accompanied a rise in the home ownership rate, from 65 percent to 69 percent.

In addition, refinancing can be a key tool for people with credit problems to make their debt burdens more manageable. In short, what Bernanke is recognizing is that despite the bad press, subprime mortgages can play a constructive role in the economy.

Source Go Slow on Subprime Regulation

About the Author
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.

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