Bush outlines aid for mortgage holders
By DEB RIECHMANN, Associated Press Writer
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, 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," 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," 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 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, 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.
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.
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I definitely see the urgency to helping home owners who are holding adjustable rate mortgages. However, I also believe that even those of us who have fixed rate loans become victims of the falling property values in terms of refinancing to a lower rate or even keeping the loans intact. Back in 2006 when we bought our condo, the market was still good and buying property in a good neighborhood, close to the business district and with good schools, one could safely assume that the appreciation will be steady and the investment would bring some profit. Taking mortgage loans at higher rates back then, with a hope to refinance to more favorable rate as the property value appreciates turned out to be a very risky business, though. Even though the Fed is lowering rates, the lenders are extra cautious and reluctant to refinance loans on properties where the value did not go up significantly. The Housing Authority's guaranty could alleviate this problem and ease up the lending crisis, also helping the economy. Having to spend less on our mortgage payments would make us feel more secure and would allow us to spend more money elsewhere and this is all that we need right now.
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