HIGHLIGHTS: Bernanke's congressional testimony

WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke on Wednesday testified to the congressional Joint Economic Committee on the economic outlook.

Following are highlights both from his prepared remarks and the question and answer session that followed:

ON HOUSING (from Q&A):

About 15 percent of all home loan purchases we have seen in the last couple of years were by people who were investors... Trying to separate the, quote, deserving from the undeserving is always a difficult problem...

The most serious problems remain in the housing area. To the extent that you can come to agreement among yourselves about ways to improve the mortgage markets so that more people who want to buy homes are able to buy homes and so that unnecessary foreclosures can be prevented ... that is the general area, in the short run, that I would be most encouraging that you look at.

ON POSSIBILITY OF CONTRACTION (from Q&A):

Let me be precise about what I said about our view of the forecast. We're currently in a period of slow growth that began in the fourth quarter of last year. We expect it to continue through the first half of this year. It's possible, not certain, but possible, that the first half of this year will be slightly contractionary. But that does not necessarily mean there is a recession because it would depend on the circumstances and the NBER (National Bureau of Economic Research) makes those determinations well after the fact. At this point, we're expecting better growth in the second half of the year in part because of the monetary and fiscal stimulus which is already in the pipeline. So, that is kind of the outline that we have currently. Of course, its very provisional and we will see how things evolve. But there is no question that the first half of 2008 is a slow period for the economy.

ON UBS LOSSES (from Q&A):

We were aware of their problems for quite a while. They, however, are a Swiss-domiciled bank, and so the Swiss took the primary responsibility. Of course, we worked with the Swiss because they (UBS) have substantial operations in the United States. The appropriate response to their losses would be to raise capital and indeed they did. That was, in fact, very encouraging that they were able to go out and raise a substantial amount of capital. That's exactly what we would urge any institution that was in trouble (to do). Either to raise capital or to somehow get itself acquired would be our general approach.