FDIC's Bair touts Dodd-Frank, but more fiscal steps needed

The Dodd-Frank financial reform law provides a new way forward for managing the financial system, but tough steps still need to be taken to get the nation's fiscal house in order, Federal Deposit Insurance Corporation Chairman Sheila Bair said in a speech.

Speaking before the Consumer Federation of America, Bair acknowledged the financial overhaul has created some unsettling uncertainty, but changes were needed to avoid future crises.

"It is time to move forward, not back," she said, according to her prepared remarks. "It is now up to us to ensure that the new law is implemented strongly and fairly."

On housing, she said there needs to be a level playing field between banks and non-banks providing consumer lending.

"The lack of sensible, consistent mortgage-lending standards and consumer protections in the run-up to the crisis ended up destabilizing housing markets and the entire financial system," she said.

Now, homeowners struggling to make mortgage payments need help finding out if they can modify their loans to avoid foreclosure, she said.

The "serious weaknesses" in mortgage servicing and foreclosure processing are caused by a system not built to handle the currently large number of trouble mortgages coupled with a compensation structure for mortgage servicers that does not adequately support loss-mitigation measures.

Included in those problems is the "uncoordinated dual-track process," where a servicer simultaneously advances loan modification and foreclosure proceedings for the same homeowner.

"This has often led to needless confusion for borrowers and can result in costly and unnecessary foreclosures," she said.

Bair called for servicers to provide a single point of contact for struggling homeowners and for a dramatic simplification of the private loan modification process.

However, she did not focus all her calls for improvement on the private sector. As the nation gets itself back into good fiscal shape, Washington also needs to step up, she said.

"Excessive government borrowing poses a clear danger to our long-term financial stability," she said. "The time is now for all of us to put aside narrow interests and develop a comprehensive long-term plan to restore our fiscal strength."