During a hearing of the U.S. House of Representatives Committee on Financial Services, Bernanke said ,though he would like to see the government do more to keep people in their homes, several issues need to be addressed.

"I feel we need to do a lot more on foreclosure prevention," Bernanke said, adding, however, efforts should be made to mitigate future loses.

The FDIC has been encouraging banks to work with homeowners by reworking mortgage terms to reduce payments to 31 percent of income, in some cases lowering interest rates or extending the length of the loan. Treasury and the Federal Reserve, on the other hand, had been considering principle write-downs.

Bernanke said the best way to handle the situation is to induce lending institutions to "undertake these modifications." The FDIC approach involves insuring part of any loss should one be incurred after modification. Expanding that approach, however, could be costly, Bernanke said.

"There are other ways of subsidizing," he said.