Ben Bernanke, the Chairman of the US Federal Reserve, pledged to crack down on lax mortgage lending yesterday as JPMorgan Chase became the latest bank to react to the effects of defaults on home loans in America.

Mr Bernanke bowed to sustained pressure from Congress and said that he would introduce new rules to cut down on the kind of “predatory” practices that had resulted in home loans being made to high-risk borrowers and prompted a surge in mortgage defaults.

Mr Bernanke said that he was looking at ways to root out “unfair or deceptive” lending practices and he expected to introduce new rules next year.

He blamed “abusive lending practices and outright fraud” for dragging down the housing sector and, in turn, hurting the American economy.

“To a considerable degree, the slower pace of economic growth in recent quarters reflects the ongoing adjustment in the housing sector,” the Fed Chairman said as part of his twice-yearly report to Congress on the US economy. “Rising delinquencies are creating personal, economic and social distress for many homeowners and communities, problems that will likely get worse before they get better.”

Mr Bernanke’s comments came as JPMorgan said that it had set aside $1.53 billion (£745 million) for loan losses in the second quarter, up from $493 million the year before, as even perceived low-risk borrowers with strong credit histories were defaulting on home loans.

Mike Cavanagh, JPMorgan’s chief financial officer, said that the declining fortunes of the housing market were “definitely a change in trend that we’re reacting to”.

Bear Stearns was confirmed as Wall Street’s biggest victim of America’s mortgage woes yesterday, as the extent of the losses made on two of its hedge funds was quantified for the first time.

One highly leveraged Bear Stearns hedge fund, heavily invested in bonds backed by sub-prime mortgages, has lost all the $638 million of equity that it had on March 31. The other has lost 91 per cent of its $925 million in equity. The vast majority of the hedge funds’ losses look likely to be borne by their third-party investors, rather than by Bear Stearns. Analysts said that they had done the bank’s reputation considerable harm.

America’s sub-prime mortgage meltdown is spreading beyond the housing market as it makes lenders increasingly nervous about backing leveraged buyouts, which they perceive as similarly risky investments. George Roberts, a co-founder of Kohlberg Kravis Roberts, became the latest senior private equity executive to acknowledge that the industry’s best days may be behind it as several years of easy credit give way to a credit crunch. “The coming years will be tougher, without question. The yields will drop significantly,” Mr Roberts told the German Manager Magazin.

He also said that the private equity sector needed to do more in terms of publicity: “Too few people understand how we operate and why we really do add value to the firms we acquire,” he said.

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