The Tech - Online EditionMIT's oldest and largest
newspaper & the first
newspaper published
on the web
Boston Weather: 45.0°F | Overcast
Article Tools

Federal policymakers have concluded that the turmoil plaguing the housing and financial markets is likely to spill deep into 2009, becoming one of the most significant domestic problems to confront the next president when he steps into the Oval Office in January.

Ben S. Bernanke, the chairman of the Federal Reserve, publicly indicated on Tuesday that he believes the problems will persist into next year when he outlined a series of steps the Fed is considering in the coming months.

One such step would extend low-interest lending programs to Wall Street’s largest investment banks into next year. The programs, one of which was set to expire in September, can continue only if the Fed issues a finding that there are “unusual and exigent circumstances” that justify them.

Bernanke also recommended that Congress grant the Fed broader authority to monitor and supervise the financial markets to assure greater stability in the future. But with time running out on this session, lawmakers are unlikely to adopt such legislation before next year.

Treasury Secretary Henry M. Paulson Jr. said in a speech last week in London that the problems plaguing the housing and financial markets might last longer than originally expected.

He followed up in another speech on Tuesday by saying that the Bush administration was working to prevent as many home foreclosures as possible, but that “many of today’s unusually high number of foreclosures are not preventable.” Paulson said 1.5 million home foreclosures were started in 2007 and that an estimated 2.5 million more would take place this year.

Still, the markets seemed reassured that Washington officials were redoubling their efforts to resuscitate the weak housing sector, despite the downbeat comments. The Dow Jones industrial average closed, which has fallen sharply in recent weeks, closed up 1.4 percent, or 152 points.

Bernanke said that the Fed would issue next week long-awaited rules to restrict new exotic mortgages and high-cost loans for people with weak credit. Such mortgages have been a central cause of the current market problems.

The Federal Housing Administration will also begin an expanded effort next week to help a larger group of troubled homeowners refinance their adjustable mortgages. Under the plan, homeowners would be eligible to refinance even if they have missed up to three monthly mortgage payments over the previous 12 months. Homeowners who have fallen behind on their payments because of job loss, declining wages and family illness will also be eligible, even if their rates have not increased. Homeowners are now eligible only if they were current on their mortgages before their interest rate was adjusted upward.

For its part, Congress is close to completing legislation on a $300 billion foreclosure-rescue plan that would help troubled borrowers refinance into more affordable loans insured by the federal government. The Senate is expected to approve a measure by next week.

The Fed created the lending programs to Wall Street in March as part of a broader effort to prevent financial institutions from collapsing, as Bear Stearns nearly did before it was sold under heavy pressure from the Fed and the Bush administration to JPMorgan Chase.