Bush Tackles Home Financing Crisis

08/31/2007 2:14 PM ET
WASHINGTON (CBS/AP)- President Bush on Friday outlined ways to help homeowners facing foreclosure - the administration's first effort to deal with an expected wave of defaults fueled by the mortgage crisis. The initiatives, which are not aimed at bailing out lenders or speculators, are designed to help homeowners with risky mortgages keep their houses. In remarks in the Rose Garden, Mr. Bush also discussed efforts to keep the problems from arising in the future. "The government's got a role to play, but it is limited," Mr. Bush said. "A federal bailout of lenders would only encourage a recurrence of the problem." The president insisted that the U.S. economy was strong and could weather recent turbulence in the financial markets. He said the mortgage market, especially the subprime sector, has shown particular strain. One of the most troubling developments has been an increase in adjustable-rate mortgages, which start out with low interest rates, then reset to higher rates after a few years. "This has led some homeowners to take out loans larger than they could afford based on overly optimistic assumptions about the future performance of the housing market," Mr. Bush said. "Others may have been confused by the terms of their loan, or misled by irresponsible lenders. Whatever the reason they chose this kind of mortgage, some borrowers are now unable to make their monthly payments, or facing foreclosure." A key element of Mr. Bush's plan would allow homeowners with good credit histories, but who cannot afford their mortgage payments, to refinance into mortgages insured by the Federal Housing Administration to keep from defaulting. Earlier this month, Mr. Bush predicted that the ongoing decline in the housing market wouldn't become precipitous, but would result in a "soft landing." He rejected any direct government aid to homeowners losing their houses to foreclosures, saying he only supported federal government help that would encourage refinancing and educate prospective home buyers about risky mortgage terms "Anybody who loses their home is somebody with whom we must show enormous empathy," the president said at an Aug. 9 news conference. "The word `bailout,' I'm not exactly sure what you mean. If you mean direct grants to homeowners, the answer would be no, I don't support that." On Friday, Bush: - Urged Congress to pass legislation that would give the Federal Housing Administration more flexibility to help mortgage holders with subprime mortgages. - Pledged to work with Congress to reform the tax code to help troubled borrowers rework their loans. - Called for rigorously enforcing predatory lending laws and strengthening lending practices. Meanwhile, Federal Reserve Chairman Ben Bernanke pledged Friday that the central bank will "act as needed" to keep the credit crisis that has unhinged Wall Street from hurting the national economy. In anxiously awaited remarks, Bernanke didn't specify what the Fed's next move will be but made clear policymakers are keeping close tabs on the problem, which has roiled investors in the United States and around the globe. Even as Bernanke vowed Fed action, he sought to temper investors' expectations. "It is not the responsibility of the Federal Reserve nor would it be appropriate to protect lenders and investors from the consequences of their financial decisions," Bernanke said. "But developments in financial markets can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account when determining policy." Foreclosure and late payments have spiked, especially for so-called subprime borrowers with blemished credit histories or low incomes. Higher interest rates and weak home values have made it impossible for some to pay or to keep up with their monthly mortgage payments. Some overstretched homeowners can't afford to refinance or even sell their homes. Mortgage foreclosures and late payments are expected to worsen. Some 2 million adjustable rate mortgages are to reset to higher rates this year and next. Steep penalties for prepaying mortgages have added to some homeowners' headaches. The economy enjoyed a strong revival in the spring although growing troubles in housing and credit markets have darkened prospects considerably since then. The Commerce Department reported Thursday that the gross domestic product grew at an annual rate of 4 percent in the second quarter - the strongest showing in more than a year. But that growth could be the best showing for some time as the economy continues to be battered by the worst housing slump in 16 years and a widening credit crisis that has sent financial markets on a roller-coaster ride in recent weeks.