Economic recovery remains hindered by continued problems in the housing and mortgage markets, Federal Reserve governor Elizabeth Duke said on Monday.

During a speech in Phoenix, AZ, Duke said there are currently widespread payment problems in every category of mortgages as households struggle to meet their payment obligations amid weaker economic conditions.

"It also reflects the fact that reduced home equity and tighter mortgage credit have impaired borrowers' ability to refinance their mortgages in order to cope with income loss, unexpected expenses, or adverse life events, she said.

Duke noted that 25% of subprime loans and 13% of near-prime loans are now seriously delinquent, meaning they are more than 90 days past due or are in foreclosure. There were more than 2.25 million foreclosures initiated in 2008, more than twice the number seen in 2006, Duke said.

"More broadly, the recovery of the macroeconomy and the financial system are being inhibited by ongoing problems in the housing and mortgage markets," she said. "At this moment, we all simply need to do whatever we can to address the enormous challenges facing our communities."

Duke called on servicers to implement effective and sustainable modifications. She also said that while a number of private and public steps have been taken towards preventing unnecessary foreclosures, "much more" needs to be done.

Duke said public support is needed for housing finance until private credit and securitization markets are restarted. "We need to strengthen and augment our efforts to reduce preventable foreclosures. In addition, we need to turn far greater attention to limiting the costs of foreclosures that do occur," she noted.

By Stephen Huebl and edited by Sarah Sussman
©CEP News Ltd. 2009