Ben Bernanke hinted yesterday that he expects the crisis in America’s mortgage market to be over by March.

The US Federal Reserve Chairman was facing questioning from congressmen at a committee in Washington looking into the mortgage crisis. His prediction was made amid a discussion about plans to allow Fannie Mae and Freddie Mac, the government-sponsored mortgage companies, to take on bigger home loans to free up more liquidity in the credit markets.

The Fed Chairman said that any measures should be both “prompt” and “temporary” because after March they would be “counter-productive”.

Kevin Logan, an economist at Dresdner Kleinwort in New York, said: “What he is saying is that the stress is in the market now. If you want to address that it needs to happen now, not in six months, because by then the market will be functioning normally. By March, he is saying, it will be way too late and won’t be necessary and may increase systemic risk. He is giving a broad hint that he expects the market to have righted itself by March.”

Barney Frank, chairman of The House Financial Services Committee, told The Times yesterday that he felt confident new measures to help struggling mortgage borrowers could be in place by the Thanksgiving break, on November 22. He said: “Once the Senate acts, we could do it within two weeks.” The planned changes include mortgage insurance and a measure to allow Fannie Mae and Freddie Mac to buy up bigger mortgages.

While acknowledging that the sub-prime mortgage crisis had triggered “significant market stress”, Mr Bernanke also suggested that global financial markets had overreacted to America’s home loan difficulties. Mr Bernanke said: “The resulting global financial losses have far exceeded even the most pessimistic estimates of the credit losses on these loans.”

It is estimated that Americans will default on home loans worth about $100 billion in the next year or so.

Mr Bernanke gave warning that “delinquencies and foreclosure initiations in this class of mortgages are likely to rise further”.

Mr Bernanke’s comments come two days after America’s central bank cut rates by a half percentage point to 4.75 per cent, the first time in four years that the cost of borrowing has been reduced.

Henry Paulson, the US Treasury Secretary, also faced questioning from congressmen on the House Financial Services Committee.

Mr Paulson said that the Government was considering increasing the size of home loans that Fannie Mae and Freddie Mac are allowed to buy, bundle up and sell on. Currently, they cannot handle mortgages worth more than $417,000 (£208,000).

At a separate press conference, President Bush expressed optimism about the outlook for the US economy despite “some unsettling times” in America’s housing and credit markets. “I say that the fundamentals of our nation’s economy are strong,” he said.

He pointed out that inflation was down, markets steady and unemployment relatively low. Exports are up, he said, and corporate profits “seem to be strong”.

Pressed on whether he was concerned that the US economy was nearing a recession, President Bush said: “You need to talk to an economist.”

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