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Potential New US Fed Chair Speaks?

Ben Bernanke, in his first speech as the new Chairman of the White House,assured the public that the Bush administration is closely monitoring the housing market.

"The administration will continue to monitor developments in the housing market. However, our best defenses against potential problems in the housing markets are vigilant lenders and banking regulators, together with perspective and good sense on the part of the borrowers."

Bernanke, who could fill Greenspan's shoes as Fed Chairman when the time comes, is having way too much faith in borrowers. Good sense is not something that neither the lender, nor the subprime borrowers involved in this "frothy" market have in abundance.

"We don't want to stifle financial innovation," said Steve Fritts, associate director for risk management policy at the Federal Deposit Insurance Corporation. "We have the most vibrant housing and housing-finance market in the world, and there is a lot of innovation. Normally, we think that if consumers have a lot of choice, that's a good thing."

Douglas Duncan, chief economist at the Mortgage Bakers Association agrees that this may be the end of the road in the mortgage affordability cycle. He says,"While I don't think they are at the point of giving out free toasters to get customers, loan creativity appears to be at maximum level."

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