Fed's Kroszner - Mortgage Market Recovery Will Take Time

Fed Governor Randall Kroszner, addressing a conference of state bank supervisors, said that mortgage markets will recover slowly with more emphasis on improved risk management techniques needed to help recovery.

Speaking in Florida, Kroszner said, "Investors with more and better information from the originators and sponsors of credit products will be able to more easily conduct proper due diligence and verify evaluations of credit risk. "Recovery in the mortgage market will take time and will require more market and regulatory discipline."

Kroszner laid some blame for the current crisis on investors who were attracted to structured securities without a thorough understanding of the underlying risk profiles and believes more information about loans and their programs that are sold to investors will reduce some of the risks of lending in the future.

The Federal Reserve has cut benchmark interest rates by 3.25 percentage points since September to 2 percent in a bid to buffer the cooling economy. In addition, the Fed has pumped hundreds of billions of dollars into financial markets to restore normal functioning in credit markets frozen by the crisis.

Krosner said he expects the "originate-to-distribute model" of lending in which a loan is made, then packaged into a security and sold to investors to continue to be an important part of the financial landscape.