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"Government likely has a role to play in supporting mortgage securitization, at least during periods of high financial stress," he said.
This role should remain even if suggestions for alternate organization of mortgage financing are incorporated into lending, Bernanke said.
"Even if alternative organizational structures are considered for the future, the U.S. government's strong and effective guarantee of the obligations issued under the current GSE (government-sponsored enterprise) structure must be maintained," he said.
In early September, Treasury Secretary Henry Paulson announced that the government was, in effect, taking control of embattled mortgage lenders Fannie Mae and Freddie Mac. The move was meant to bolster the housing markets and protect the financial system.
Combined, Fannie and Freddie guarantee or own around $5 trillion in mortgages, and their failure would have thrown the mortgage market into a tailspin. However, the government intervention is likely to cost taxpayers hundreds of billions on top of the $700 billion financial rescue package passed in mid-October, adding to the rapidly expanding national debt.
This growth of the national debt has led some to call for replacing Fannie and Freddie with completely private mortgage lenders. However, in his remarks, Bernanke dismissed that notion, suggesting that removing government involvement could exacerbate existing problems making the economy.
"From a public policy perspective, a greater concern with fully privatized (FIRMS | Quote | Chart | News | PowerRating) is whether mortgage securitization would continue under highly stressed financial conditions," Bernanke said. "As I have noted, almost no mortgage securitization is occurring today in the absence of a government guarantee."
The Fed Chairman did not offer any specific suggestions from the Federal Reserve, choosing instead to provide an overview of a number of proposals that both the Fed and Treasury have provided.
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