Page last updated at 18:10 GMT, Thursday, 4 December 2008

US Fed demands foreclosures push

US Federal Reserve chairman Ben Bernanke
Mr Bernanke says foreclosures have a negative impact on the US economy

US Federal Reserve chairman Ben Bernanke has called on the government to take action to stem the increasing number of home foreclosures.

He said banks should consider reducing existing mortgages by writing down negative equity in people's homes.

The Fed chairman said the government had several options, all using public funds, that could reduce foreclosures.

"Weakness in the housing market has proved a serious drag on overall economic activity," he added.

"Despite good-faith efforts by the private and public sectors, the foreclosures rate remains too high."

Mr Bernanke said several solutions were being examined, which would allow borrowers who fell behind with their mortgage payments to stay in their homes.


One solution, said the Fed chairman, would be for the government to offer home loans at lower rates to problematic borrowers.

But he warned that such measures would require Congress to raise the federal debt ceiling.

He also mentioned efforts by the regulatory agency which manages the fund that insures bank deposits, the Federal Deposit Insurance Corporation (FDIC).

He said the agency could step in to reward lenders which agreed to share the costs of restructured loans.

FDIC forecast that its strategy could prevent 1.5 million foreclosures.

House prices have plunged in the US, with many borrowers facing escalating costs on their mortgages.

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