Federal Reserve Chairman Ben Bernanke testified before the House Committee on Financial Services tackling housing issues, while identifying a need for the timely release of qualified residential mortgage standards.

Congressman Gary Miller, R-Calif., questioned the chairman’s view on the importance of finalizing the QRM standard and its release to lenders.

The QRM standards should be no broader than the qualified mortgage rule, Bernanke said. Adding that the QRM criteria "should not be so constraining."

With the final rule of QM – for the most part – there should be more incentive to finalize the QRM standard in a timely manner.

Congresswoman Carolyn Maloney, D-NY, attacked the Fed's efforts during the independent foreclosure review process, which was eventually canceled and replaced with an $8.5 billion settlement with servicers. Maloney noted that more than $1.5 billion has been given to consultants, but not homeowners. 

"We can put a person on the moon, but we can't solve the foreclosure process," Maloney questioned.

Bernanke admitted that the Fed takes responsibility for the slow process of the reviews and has streamlined a process that completely bypasses the consultants and deals directly with the borrowers.

The central bank has agreements with most servicers involved with the process and within the coming weeks, about $9 billion will be given back to mortgage relief borrowers, Bernanke said.

While Bernanke firmly believes that at some point an "acceptable set of institutions" will have to replace Fannie Mae, Freddie Mac and the Federal Housing Administration’s dominance in the mortgage market, "shutting them down would restrict credit quite considerably," he said.

One bright spot in the economy is the housing market, the Fed chairman said. While the market dropped 30% during the financial crisis, housing is recovering from its bottom line, Bernanke said.

As a result, Congressman William Lacy Clay, D-MO, noted significant gains in the market as well as the current condition of the industry and asked for the chairman’s view of today's housing market.

Bernanke noted that while it’s hard to make predictions, the housing market continues to recover with record low mortgage rates and rising home prices. Additionally, although foreclosures are too still high, the number of underwater borrowers continues to decline, he added.

Home prices rose by 5.5% last year, as measured by S&P's Case-Shiller home price index and home sales in 2012 reached their highest level in five years. Additionally, residential investment grew by more than 10% in four of the last five quarters, according to a memorandum by the members of the Committee on Financial Services. 

Thus, the economy will continue to strengthen as a result of housing, putting people back in the workforce in several ways including construction jobs.

As a result, if the unemployment rate continues to drop and inflation remains on an upward trend, the monetary policy and quantitative easing program will remain in tact, Bernanke said.

In Bernanke’s testimony Tuesday, the chairman essentially admitted the Federal Open Market Committee is attempting to drive a recovery using interest rates to full certain asset purchases, including home prices. 

"By raising employment and household wealth — for example, through higher home prices — these developments have in turn supported consumer sentiment and spending," Bernanke said.