Bernanke Urges Caution, Awareness of Bad Credit Home Loans

Consumers must sharpen their assessments of whether certain mortgages or other investment products make sense for them, Federal Reserve Chairman Ben Bernanke said Wednesday.

“Some evidence, including recent Federal Reserve research on consumers holding adjustable-rate mortgages, suggests that awareness could be improved, particularly among borrowers with lower incomes and education levels,” Bernanke told the Washington Times.

As the credit market has grown and becomes more sophisticated, a home mortgage company is now able to extend credit to households and businesses that previously might have been considered not credit worthy.

In turn, Bernanke said the market for “subprime” borrowers — or people with weaker credit records who are considered high risks — has grown considerably over the years.

In 1994, fewer than 5 percent of mortgage originations were in the subprime market. But by 2005, about 20 percent of new home mortgage loans were of the subprime nature, Bernanke said. The exorbitant amount of bad credit home loans has left many Americans frustrated — and economists worried.

The Fed chief also said that making sure that every American has a chance to improve his or her economic status through hard work, entrepreneurship, saving money and other activities is essential to building economically healthy communities.

Bernanke and his Fed counterparts are keeping a close eye on inflation, but have eased their campaign of raising interest rates during their last two meetings. That’s good news for those hoping home mortgage rates remain low.