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WORLD / America
Bush unveils mortgage proposals
(AP)
Updated: 2007-09-01 10:08
WASHINGTON -- US President Bush on Friday announced a set of modest
proposals to deal with an alarming rise in mortgage defaults that have
contributed to turbulent financial markets over recent weeks.
President Bush, center, accompanied by Treasury Secretary Henry Paulson,
right, and Housing Secretary Alphonso Jackson, makes a statement on home
ownership financing, Friday, Aug. 31, 2007, in the Rose Garden at the
White House in Washington. [AP]
Housing analysts said it was highly likely the limited steps Bush
outlined will be expanded in coming weeks by a Democratic-controlled
Congress intent on responding to growing voter anxiety as up to 2 million
homeowners worry about losing their homes.
Officials in the troubled housing industry said the important thing was
that the administration had finally offered a proposal, a step they said
should help calm global financial markets that have been on a
rollercoaster ride in recent weeks as investors worried about a serious
credit crunch.
"This is not a cure-all, but it is good to see something coming out of
the White House," said David Seiders, chief economist for the National
Association of Home Builders. "It is good for markets, both domestically
and internationally, to see that the White House is facing the problem
head on and at least starting to do something about it."
Bush's comments came the same day that Federal Reserve Chairman Ben
Bernanke pledged to do everything necessary to protect the economy from
the market turmoil. His comments to a Fed conference in Wyoming were seen
as a strong signal that the central bank was moving closer to cutting a
key interest rate, possibly as soon as its next meeting Sept. 18.
"Bernanke basically said that if problems in the financial market are
hurting the economy, then the Fed will have to respond," said Mark Zandi,
chief economist at Moody's Economy.com. "All the conditions are in place
for the Fed to begin cutting interest rates."
The comments from Bernanke and Bush bolstered spirits on Wall Street,
where the Dow Jones industrial average finished another erratic week with
a gain of 119.01 points on Friday, to close at 13,357.74.
Both Bernanke and Bush emphasized that their actions were not aimed at
bailing out investors who had made bad decisions.
"It's not the government's job to bail out speculators or those who made
the decision to buy a home they knew they could never afford," Bush said
in the Rose Garden. "Yet there are many American homeowners who could get
through this difficult time with a little flexibility from their lenders
or a little help from their government."
With Treasury Secretary Henry Paulson at his side, Bush insisted the
economy was strong and could weather market turbulence. But he did not
repeat his forecast of Aug. 8, that the economy was headed for a "soft
landing." The next day, financial markets went into a significant swoon,
sparked by the announcement by France's largest bank that it was halting
redemptions in three large investment funds.
That disclosure sent shock waves through the global financial system
because it indicated problems from rising defaults on subprime mortgages
in the United States - mortgages packaged and sold to investors worldwide
- were more far-reaching than realized.
Bush's proposals unveiled Friday are designed to help combat those
defaults. They would make it easier for borrowers now holding adjustable
rate mortgages that are resetting to higher monthly payments to refinance
those loans using the resources of the Federal Housing Administration.
The FHA is a Depression-era agency created to help low and
moderate-income Americans afford homes.
Under the Bush proposal, which FHA officials said would take effect
immediately, an estimated 60,000 homeowners who have fallen behind on
payments because their mortgages have reset would be able to refinance
with FHA-insured loans. That marks a significant change because FHA does
not now insure refinanced loans from borrowers who are currently
delinquent.
"This means that many families who are struggling now will be able to
refinance their loans, meet their monthly payments and keep their homes,"
Bush said.
To qualify for the new program, being called FHA Secure, a borrower will
have to prove the original loan was being repaid until it reset to a
higher rate and they must have 3 percent equity in the home. The FHA does
not supply the mortgage loan but it guarantees loans extended by banks
and other lenders.
Currently, the maximum loan the FHA can guarantee in most states is
$202,000 although that can rise to $362,000 in high-cost states such as
California and New York. The administration is supporting FHA overhaul
legislation to lift those limits.
FHA officials said another 20,000 people would be helped by a new type of
risk-based pricing for its loan guarantees that will let lower income
mortgage holders qualify by paying slightly higher premiums. This change,
which will require the FHA to change its rules, is expected to take
effect early next year after a public comment period.
The 80,000 additional people who would qualify for FHA loan guarantees
under the proposed changes Bush announced would still be a tiny portion
of an estimated 2 million homeowners whose adjustable rate mortgages are
scheduled to reset at higher rates by the end of 2008. Of those 2 million
loans that will reset, FHA estimates that 500,000 could go into
foreclosure. The new programs plus current FHA programs could help about
half of those 500,000 loans be refinanced, officials said.
As another part of his mortgage package, Bush said he would support
legislation pending in Congress that would temporarily change tax law to
let homeowners avoid paying taxes on forgiven debt in loans being
restructured by financial institutions. Sen. Debbie Stabenow, a Democrat
from Michigan, a state particularly hardhit by foreclosures because of
auto industry layoffs, is sponsoring that legislation.
Bush's proposals follow a number of measures already introduced in
Congress to deal with the mortgage lending crisis. Many Democrats said
while they welcomed Bush's ideas, they felt they did not go far enough
and should be modified to help more people.
"These are welcome steps, but the president's proposal does not go far
enough," said Sen. Barack Obama of Illinois and a Democratic presidential
candidate. "I have called for a plan that will help far more struggling
borrowers avoid foreclosure."
Sen. Christopher Dodd, another Democratic presidential candidate and
chairman of the Senate Banking Committee, said, "For too long this
president has sat on his hands as families were losing their homes."
Many Democrats said the administration must go further by supporting
their proposals to lift the current cap on how many home loans mortgage
giants Fannie Mae and Freddie Mac can hold in their portfolios and by
lifting the current cap on so-called jumbo loans that Fannie and Freddie
would be able to purchase.
Sen. Charles Schumer, D-N.Y., said he believed Bush's announcement Friday
represented a major ideological shift for the administration, which has
generally favored free-market solutions to problems rather than increased
government involvement.
"The president has gotten out of his ideological straitjacket and seen
that in times of crisis, one of the jobs of government is to help,"
Schumer told reporters at a Capitol Hill news conference.
Bush also urged Congress to modernize and improve the FHA so more
homeowners could qualify for the mortgage insurance the agency provides,
saying, "I look forward to signing a bill as quickly as possible." Last
year the House passed legislation to modernize FHA, but Congress has not
yet sent a bill to the White House.
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