Bernanke sees more house price drops

ORLANDO, Florida (Reuters) - Federal Reserve Chairman Ben Bernanke on Tuesday warned mortgage delinquencies and foreclosures were likely to rise and that more house price declines could be expected, and called for active measures to stabilize housing markets.

"This situation calls for a vigorous response," Bernanke said in a speech to the Independent Community Bankers of America, referring to government and private-sector initiatives to slow the rate of home loan failures.

"Measures to reduce preventable foreclosures could help not only stressed borrowers but also their communities and, indeed, the broader economy," he said.

Current housing difficulties differ from past housing market slumps because of the large number of homeowners who owe more on their home loans than their homes are worth, Bernanke said.

"In this environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure" than reducing interest rates on troubled home loans, he said.