Federal Chairman Ben Bernanke said Fannie Mae and Freddie Mac continue to remain under pressure and that the government must look at new methods to provide guarantees on mortgages.

Speaking via satellite at a conference on the mortgage breakdown at the University of California at Berkeley, Bernanke urged the government to act as a backstop for the mortgage bond market.

Bernanke also spoke about the need to reform the mortgage securitization process.

"e must consider both the part played by securitization in the mortgage market and the role of the government and government-sponsored entities in facilitating securitization," said Bernanke.

The Fed chairman offered the option of having Freddie and Fannie become similar to a public utility model.

He also offered the idea of issuing covered bonds instead of having GSE-type organizations.

"Covered bonds are debt obligations issued by financial institutions and secured by a pool of high-quality mortgages or other assets," said Bernanke. "These instruments are subject to extensive statutory and supervisory regulation designed to protect the interests of covered bond investors from the risks of insolvency of the issuing bank."

By Steve Stecyk and edited by Sarah Sussman
©CEP News Ltd. 2008