borrowers. ample evidence suggests that responsible nonprime lending can be beneficial and safe for the borrower as well as profitable for the lender. for example, even as delinquencies on subprime arms have soared, loss rates on subprime mortgages with fixed interest rates, though somewhat higher recently, remain in their historical range. some lenders, including some who have worked closely with nonprofit groups with strong roots in low - to - moderate - income communities, have been able to foster homeownership in those communities while experiencing exceptionally low rates of default. unfortunately, at this point, the market is not discriminating to any significant degree between good and bad nonprime loans, and few new loans are being made. although subprime borrowers and the investors who hold these mortgages are the parties most directly affected by the collapse of this market, the consequences have been felt much more broadly. i have already referred to the role that the subprime crisis has played in the housing correction. on the way up, expansive subprime lending increased the effective demand for housing, pushing up prices and stimulating construction activity. on the way down, the withdrawal of this source of demand for housing has exacerbated the downturn, adding to the sharp decline in new homebuilding and putting downward pressure on house prices. the addition of foreclosed properties to the inventories of unsold homes is further weakening the market. as you know, the losses in the subprime mortgage market also triggered a substantial reaction in other financial markets. at some level, the magnitude of that reaction might be deemed surprising, given the small size of the u. s. subprime market relative to world financial markets. part of the explanation for the outsized effect may be that, following a period of more - aggressive risk - taking, the subprime crisis led investors to reassess credit risks more broadly and, perhaps, to become less willing to take on risks of any type. investors have also been concerned that, by further weakening the housing sector, the problems in the subprime mortgage market may lead overall economic growth to slow. however, part of the explanation for the far - reaching financial impact of the subprime shock is that it has contributed to a considerable increase in investor uncertainty about the appropriate valuations of a broader range of financial assets, not just subprime mortgages. for example, subprime mortgages were often combined

ben s bernanke : semiannual monetary policy report to the congress speech by mr ben s bernanke, chairman of the board of governors of the federal reserve system, before the committee on banking, housing, and urban affairs, us senate, washington dc, 26 february 2013. * * * chairman johnson, ranking member crapo, and other members of the committee, i am pleased to present the federal reserve ’ s semiannual monetary policy report. i will begin with a short summary of current economic conditions and then discuss aspects of monetary and fiscal policy. current economic conditions since i last reported to this committee in mid - 2012, economic activity in the united states has continued to expand at a moderate if somewhat uneven pace. in particular, real gross domestic product ( gdp ) is estimated to have risen at an annual rate of about 3 percent in the third quarter but to have been essentially flat in the fourth quarter. 1 the pause in real gdp growth last quarter does not appear to reflect a stalling - out of the recovery. rather, economic activity was temporarily restrained by weather - related disruptions and by transitory declines in a few volatile categories of spending, even as demand by u. s. households and businesses continued to expand. available information suggests that economic growth has picked up again this year. consistent with the moderate pace of economic growth, conditions in the labor market have been improving gradually. since july, nonfarm payroll employment has increased by 175, 000 jobs per month on average, and the unemployment rate declined 0. 3 percentage point to 7. 9 percent over the same period. cumulatively, private - sector payrolls have now grown by about 6. 1 million jobs since their low point in early 2010, and the unemployment rate has fallen a bit more than 2 percentage points since its cyclical peak in late 2009. despite these gains, however, the job market remains generally weak, with the unemployment rate well above its longer - run normal level. about 4. 7 million of the unemployed have been without a job for six months or more, and millions more would like full - time employment but are able to find only part - time work. high unemployment has substantial costs, including not only the hardship faced by the unemployed and their families, but also the harm done to the vitality and productive potential of our economy as a whole. lengthy periods of unemployment and underemployment can erode workers'skills and attachment to the labor force or prevent young people from gaining