Top banker offers answer to credit woes: Time

For all the Federal Reserve's efforts to get the nation's capital markets back on track, what is needed most of all might be time, Kenneth D. Lewis, chief executive officer of Bank of America Corp., said today in Philadelphia.

"I think everybody is frustrated at not being able to come up with a solution," Lewis said on a visit to the National Constitution Center.

"One wonders if the answer is not just some more time and some more pain before we can set this right," the head of the nation's second-largest bank said.

Lewis said he expected housing prices, which are at the center of the financial turmoil, to hit bottom later this year and to start rising by late 2009. Prices for existing homes fell 4.6 percent in the 12 months ended in January, according to the National Association of Realtors.

Uncertainty about how far average home prices nationally will fall is a key factor in the freezing up of capital markets, because mortgage-backed securities are a major investment for many financial institutions.

Investors are reluctant to buy securities backed by residential mortgages because they fear a further decline in house prices, which forces holders of the securities to write down their value.

The Fed's decision this week to accept residential-mortgage-backed securities as collateral for loans of U.S. Treasuries to some financial institutions is aimed at breaking the gridlock.

However, the Fed still has to work out a system with those financial institutions to determine how much the mortgage-related securities are worth.

Bank of America, based in Charlotte, N.C., is the sixth-largest bank serving the Philadelphia region based on deposits. The bank is contending with subprime-mortgage-related losses even though it did not make such loans.

The losses are coming from complicated mortgage-related securities held by the company's investment-banking division and from home-equity loans, Lewis said.

The losses on home-equity loans are occurring because many borrowers in such places as California, Florida, Nevada and Arizona now owe more than their houses are worth, so they abandon them, Lewis said.

"It's actually a sociological factor that we've never seen before, because people in the past have always protected their homes above all else," Lewis said. "Now they are paying their credit card and their automobile loan, but walking away from their house."