By Jeannine Aversa, AP Economics Writer

WASHINGTON (AP) — Federal Reserve Chairman Ben Bernanke said Friday a government program intended to spark lending to consumers and businesses is still necessary even with other emergency lending programs winding down as the economy recovers.

"An ongoing need still clearly exists" for the program, which also is aimed at making sure loans flow to the troubled commercial real estate market, Bernanke said in brief remarks to a conference here sponsored by the Congressional Black Caucus Foundation.

The task of reining in special supports will be every bit as difficult as it was to roll them out to curb the financial crisis, Fed member Kevin Warsh said in a speech in Chicago.

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"We are at a critical transition period, of still unknown duration, and we must prepare diligently for an uneven road race ahead," Warsh said Friday. "If policy is not implemented with skill and force and some sense of proportionality, the success of the overall endeavor could suffer."

There are uncertainties, he said, about the trajectory of the recovery from a major financial crisis and a severe recession.

The Term Asset-Backed Securities Loan Facility goes to the heart of efforts by the Fed and Obama administration to get credit flowing more normally again, a key ingredient to a lasting economic recovery. The Fed has extended the TALF — which has the potential to generate up to a $1 trillion in lending for households and businesses — into next year. It was originally set to expire at the end of this year.

Under the program, which got off to a slow start in March, the Fed provides loans to investors. They use the money to buy newly issued securities backed by auto and student loans, credit cards, business equipment, commercial real estate and loans guaranteed by the Small Business Administration.

In the first phase, the Fed was making $200 billion available for the loans. However, investors have requested far less than that.

Still, Bernanke said the program is responsible for indirectly financing nearly 3 million loans to households — excluding credit cards — and nearly 400,000 loans to small business.

The program has attracted 121 borrowers so far, including investors of all sizes, he said.

But analysts say it is still difficult for many consumers to secure loans, one of the forces threatening to restrain the budding economic recovery.

In fielding questions after his remarks, Bernanke said the TALF program helped drive down rates on auto loans, which have "improved considerably."

Bernanke also said he was "hopeful the situation in the auto industry is going to improve." Auto sales — and production — have gotten a lift from the now-defunct government Cash for Clunkers program, where people got a rebate of up to $4,500 to buy new cars and trade in old gas guzzlers.

The Fed chief also pledged to reach out even more to minority-owned companies to make sure they are being included and helped by various government emergency lending programs.

With the economy on the mend, the Fed has taken steps to slow down or scale back some of its extraordinary support.

Earlier this week, the central bank announced its would stretch a $1.45 trillion program to lower mortgage rates and aid the housing market through March, rather wrapping it up at the end of this year. The Fed also announced it would further scale back two lending programs to banks and other financial institutions.

In August, the Fed said it would wind down a $300 billion government debt-buying program to lower a range of rates on consumer debt.
Fed policymakers will need to look at economic barometers on growth and inflation as well as track the prices of stocks, houses and other assets for clues about how lasting the recovery will be, Warsh said.

Nationwide, the median price of a new home dropped to $195,200, the government reported Friday. That was down 9.5% from $215,600 in July, the largest monthly drop on records dating to 1963.

Durable turnarounds in both stock and house prices are crucial to a lasting recovery.

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