Bush outlines plans to help homeowners

updated 5:08 p.m. ET Aug. 31, 2007

WASHINGTON - 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.

Housing analysts said it was highly likely the limited steps Bush outlined will be expanded in coming weeks by a Democrat-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.”

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. 9, that the economy was headed for a “soft landing.” The next day, financial markets went into a significant swoon, sparked by the announcement from 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.

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