The Fed’s rate slashing campaign has appeared to right the floundering financial system but nonetheless the housing slump continues to worsen. The Fed Chairman Ben Bernanke spoke before the Columbia School of Business on Monday and remarked on mortgage delinquencies and foreclosures.

“Most Americans are paying their mortgages on time and are not at risk of foreclosure. But high rates of delinquency and foreclosure can have substantial spillover effects on the housing market, the financial markets, and the broader economy. Therefore, doing what we can to avoid preventable foreclosures is not just in the interest of lenders and borrowers. It’s in everybody’s interest.”

He also calls for an increased role for the Federal Housing Administration as well as Fannie Mae and Freddie Mac in assisting the housing market. These agencies may have to step up their efforts to provide liquidity to mortgage markets as the commercial banking system appears unwilling at the moment.

Home prices have continued to fall as private financial institutions have tightened lending standards significantly, which is having an adverse effect on housing demand. Bernanke is expecting the high rate of foreclosures to continue at least to the end of the year.

One also has to keep in mind that there could be a considerable lag from the time credit markets are fully restored to when it will have a noticeable effect on the housing market. The opposite was the case, as it took a year after home prices began to fall before financial system was rocked by sub prime write downs.

The Fed’s latest rate cut will probably be the last one it will make for some time, with two members of the open market committee dissenting in last week’s vote. I believe that they would prefer to keep interest rates at their current level for as long as possible but recently the president of the Kansas City district has called the problem of inflation “serious” and that the Fed may be prompted to raise rates.