WASHINGTON (AP) – Federal Reserve Chairman Ben Bernanke offered lawmakers fresh assurances on Thursday that regulators are taking steps to better protect would-be homeowners from abusive mortgage practices.

Mr. Bernanke appeared before the Senate Banking Committee in his second straight day on Capitol Hill, where he delivered the Fed’s midyear economic assessment.

On the housing front, there have been growing problems for borrowers with spotty credit histories who hold higher-risk subprime mortgages. That has rattled investors and irked some lawmakers, who criticize the Fed and other regulators for lax oversight.

Late payments and foreclosures are spiking for homeowners with these subprime mortgages, especially those with adjustable rates. Mr. Bernanke acknowledged those problems are “likely to get worse before they get better.”

The subprime meltdown has forced more than 30 lenders, including New Century Financial Corp., into bankruptcy.

“A lot of the subprime mortgage paper is not, you know, as good as was thought originally,” Mr. Bernanke told the panel. He predicted “significant financial losses” associated with delinquencies on these mortgages. Some estimates are that subprime-related credit losses could be anywhere from $50 billion to $100 billion, he said.

The Fed, Mr. Bernanke said, is conducting a thorough review of possible actions to help consumers and would-be homeowners and prevent problems from recurring. He said the Fed is committed to providing more effective disclosures to help consumers defend against improper lending. The Fed also is looking at new rules in several areas, including restrictions on loans that don’t require proof of a borrower’s income and limitations on financial penalties for borrowers who make early payments.

The committee’s chairman Senator Dodd, Democrat of Connecticut, welcomed these steps.

“I trust and expect that it will result in significant action by the Fed to ensure that every American who seeks to buy a home will receive fair, reasonable and responsible treatment by his or her lender,” Mr. Dodd said.

Even with these efforts, some senators believe Congress probably needs to step in.

“I don’t think consumers will truly be safe from irresponsible and deceptive lending practices until we enact tougher federal laws to prevent this subprime mess from happening again,” said Senator Schumer, Democrat of New York.

Other lawmakers, meanwhile, want to see the Fed act more quickly.

“More than a million Americans lost their homes last year,” said Senator Menendez, Democrat of New Jersey. “In fact, I would dare to argue that another storm is on its way as adjustable rate mortgages explode in coming months and force more homeowners into foreclosure.

“And so, in my mind, this is not just simply a time for suggestions, it is a time for solutions,” he said.

Mr. Bernanke defended the Fed’s pace, saying it is moving as fast as it “responsibly” can on the subprime matter.

Senator Shelby, Republican of Alabama, said he is worried that problems in the subprime mortgage market won’t stay contained and will spread.

Mr. Bernanke stated anew Thursday that subprime problems probably would not seriously spill over to the broader economy or the financial system. Still, he added: “That is something we are very alert to.”

Rising interest rates and weak home values terribly squeezed some homeowners, especially those with subprime mortgages, making it difficult for them to keep up with their mortgage payments. Lax lending standards and, in some cases, abusive lending practices and outright fraud have contributed to the problems, Mr. Bernanke said.

Moreover, some borrowers took out mortgages but did not fully understand the terms, adding to the turmoil, the Fed chief explained.
In his midyear economic assessment, Mr. Bernanke repeated the Fed’s belief that the economy will grow gradually this year, restrained by the housing slump. Even so, the threat that inflation won’t recede as anticipated remains the Fed’s biggest worry.

The Conference Board released a report Thursday suggesting economic growth is likely to slow in the coming months as the sour housing market takes a deeper toll on businesses and consumers.

The board’s index of leading economic indicators fell 0.3 percent in June, compared with a 0.2 percent increase in the prior month.

Mr. Bernanke thought that demand for housing would stabilize “soon.” But even if that happens, new-home construction will remain weak as builders work off excess inventories of unsold homes, so the housing slump will continue to be a drag on the economy for some time, he said.

On other issues, Mr. Bernanke said high energy prices “are very painful” and encouraged the U.S. to diversify its energy supply to rely less on foreign oil.

And the Fed chief said he doesn’t see the need for new regulations governing hedge funds, which he said provide benefits to the economy, such as spreading risk and boost liquidity.