Federal Reserve Board chairman Ben Bernanke said Monday that the central bank will continue to support the mortgage market while bank lending remains constrained.
"We continue to encourage banks to raise additional capital to support their lending. And we continue to facilitate securitizing through our Term Asset-Backed Securities Loan Facility (TALF) and to support home lending through our purchases of mortgage-backed securities," the Fed chief told the Economic Club of New York.
The Fed has purchased more than $800 billion in agency MBS and it recently extended its MBS purchase program through March 31. (The effort was originally slated to expire at yearend 2009.)
The Fed chairman noted that banks have tightened their lending standards more than the central bank had expected.
"Unfortunately, reduced bank lending may well slow the recovery," Bernanke said. A Fed survey of senior loan officers in October found that 25% of banks had tightened their underwriting standards on prime single-family loans, a slightly higher percentage than reported in the July survey.