Lawmakers called on Wednesday for a 'mortgage czar' to help cope with an expected wave of foreclosures from the U.S. housing slump but Alan Greenspan said the credit crunch was past the worst.

We are beginning to see the frenzy calm down, the former chairman of the Federal Reserve told a conference in Lisbon. Unless we get secondary effects the worst is over.

Fallout from a global credit squeeze, sparked by problems in the U.S. subprime mortgage market, have rattled markets in recent weeks, threatening economic growth and bank earnings.

Germany's largest bank Deutsche wrote down more than $3 billion in the wake of the liquidity crunch, but said on Wednesday that it still expected net profit to rise to more than $2 billion in the third quarter.

Euro zone service sector growth suffered its biggest slowdown in at least nine years in September as the credit squeeze hurt business and new orders, a survey showed on Wednesday. U.S. service sector growth also stumbled, to the weakest pace since March.

U.S. mortgage delinquencies have soared in recent months and about 1.7 million home loans will go into foreclosure this year and next, according to Moody's Economy.com.

U.S. lawmakers say this is an emergency, calling for a relaxation in the rules on investments by government sponsored enterprises Fannie Mae and Freddie Mac so they can buy more risky home loans.

The Democrats, who control the U.S. Congress, also want U.S. President George W Bush to name a 'mortgage czar' to coordinate the federal response to the expected wave of foreclosures.

We're standing here today saying 'Mr. President, February is hundreds of thousands of foreclosures away,' said Sen. Charles Schumer, a Democrat from New York. The time to act with sensible policies is today, not months from now.

But the White House brushed this jab aside and said that there was no point in adding an extra layer of bureaucracy.

We have a housing czar, his name is Alphonso Jackson, he's the secretary of housing and urban development, White House spokesman Tony Fratto said.

Separately, the White House said laws under discussion to provide tax relief for people facing foreclosure should only be temporary. The legislation would no longer classify debt forgiven in a foreclosure as income.

BANK PAIN

Economists say the housing sector has a way to go before it turns the corner. The U.S. Mortgage Bankers Association said mortgage applications fell for the second straight week, largely reflecting a drop in demand for refinancing loans.

In other news signaling the housing sector's problems would linger, U.S. investment bank Bear Stearns Cos Inc said it was cutting 310 jobs in its mortgage origination businesses, which has now shrunk 40 percent since the start of the year.

Similarly, Morgan Stanley said on Tuesday it would cut 600 jobs in its home mortgage business.

Earlier this week, Credit Suisse warned the mortgage credit market would be problematic for the next 6-18 months. The Swiss bank announced on Monday its third quarter results would be adversely impacted but still profitable.

Investors seemed more relieved that major banks were confident about future earnings than shocked by the scale of losses linked to the U.S. subprime market, analysts said.

Stock markets have climbed sharply in recent sessions despite banks worldwide unveiling hefty subprime losses. The MSCI main world equity index (.MIWD00000PUS: Quote, Profile, Research) hit an all-time high for the third day running on Wednesday.

Nervousness ahead of the U.S. employment report for September, due on Friday, pegged back U.S. stocks though and the Dow Jones Industrial Average (.DJI: Quote, Profile, Research) closed down 79 points at 13,968.

Money market rates eased. London interbank offered rates for three-month euro deposits inched lower from this week's six-year high, while lending rates for sterling for the same period hit a seven-week low.

Bank of America Securities was able to double the size of a credit-card asset backed offering on Wednesday to $2 billion thanks to investor demand, market sources said.

Confidence has been improving as time passes and more banks report their earnings, because no matter the scale of damage to balance sheets, nothing is worse than the fear of the unknown.

A lot of the bad news is fully discounted ... and the market views as positive getting as much information out into the public domain as possible, said Derek Halpenny, senior currency economist at BTM UFJ.

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