Bernanke: Widespread credit not always good

Troubles plaguing lenders and borrowers with risky mortgages may challenge the notion that widespread access to credit is always a good thing, Federal Reserve Chairman Ben Bernanke suggested Friday.

Bernanke’s comments came as he talked about a decades-old law, called the Community Reinvestment Act, that aims to make sure that banks serve all their customers, including those in low- and moderate-income communities.

The Fed chief said the law, enacted in 1977, has produced some benefits, including helping to bolster home ownership rates among the poor, “but the results are not uniform.”

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The law doesn’t apply to lenders that aren’t banks, many of which are responsible for providing certain risky mortgages to people with low incomes and blemished credit histories.

“Recent problems in mortgage markets illustrate that an underlying assumption of the CRA — that more lending equals better outcomes for local communities — may not always hold,” Bernanke said at a Federal Reserve conference. “Whether, and if so, how to try to differentiate ‘good’ from ‘bad’ lending in the CRA context is an issue that is likely to challenge us for some time.”

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Bernanke’s remarks focused on the evolution of the law and challenges posed by an often-changing financial landscape. He did not embark on a detailed discussion — as he did on Capitol Hill on Wednesday — of the troubles in the market for subprime, or risky, mortgages.

Those lenders who make home loans to people with blemished credit histories or low incomes have been battered. Weak home prices and rising interest rates have made it increasingly difficult for borrowers to keep up with their payments. Delinquencies and foreclosures in the subprime mortgage market are soaring.

Bernanke told Congress on Wednesday he is open to working with them to address these problems.