- President George W. Bush today pledged to help people who have fallen behind in their mortgages keep their homes and to tighten safeguards against predatory lending, while rejecting a bailout for ``speculators.''
``I plan to help homeowners. The government's got a role to play,'' Bush said in a statement at the White House. But, he said, ``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 he will let the Federal Housing Administration, which insures mortgages for low- and middle-income borrowers, guarantee loans for delinquent borrowers, allowing them to avoid foreclosure and refinance at more favorable rates.
Tighter credit and higher borrowing costs threaten the housing market, which has been an engine of U.S. economic growth. At the end of last year, there were 7.5 million subprime mortgage borrowers with $1.4 trillion in loans, according to the Center for Responsible Lending, a research organization in Durham, North Carolina. More than 2 million Americans will lose their homes as introductory interest rates on mortgages reset to higher levels in coming months, according to the center.
Rising Foreclosures
U.S. stocks rallied on Bush's announcement, with the Standard & Poor's 500 Index increasing 16.35, or 1.1 percent, to 1,473.99 in New York. The Dow Jones Industrial Average added 119.01, or 0.9 percent, to 13,357.74.
The number of U.S. homes under foreclosure almost doubled in July from a year earlier as homeowners with adjustable-rate mortgages struggled to meet their rising monthly payments, RealtyTrac Inc., a seller of foreclosure data, said on Aug. 21.
Subprime and Alt-A mortgages made up 40 percent of loan originations last year. Alt-A mortgages are available to borrowers with good credit who can't or choose not to verify their income with pay stubs or tax forms. Subprime borrowers make up 13 percent of the total U.S. mortgage market, according to Federal Reserve Chairman Ben S. Bernanke.
Under Bush's plan, the FHA during the fiscal year beginning Oct. 1 would help in 80,000 more refinancings than under current programs, FHA Commissioner Brian Montgomery said in a conference call with reporters. The agency plans to help 240,000 homeowners refinance during the period, compared to about 100,000 during the fiscal year ending Sept. 30, he said. FHA intends to increase refinancings to more than 600,000 within the next three years.
`Only Game in Town'
The FHA expansion, while limited, ``is really the only game in town, and there are going to be a lot of people trying to cram through that door,'' said Kurt Pfotenhauer, senior vice president for government affairs at the Mortgage Bankers Association in Washington. Bush ``today just widened that doorway.''
Democrats in Congress and the party's presidential candidates have criticized Bush for not taking steps to curb foreclosures.
Democratic presidential frontrunner Hillary Clinton, a senator from New York, said she's ``heartened that the Bush administration is finally beginning to grasp the seriousness of the foreclosure crisis.'' Clinton, 59, proposed a plan on Aug. 7 that would eliminate prepayment penalties that lock homeowners into loans until the monthly payments escalate.
`Sound Like a Democrat'
Bush ``is starting to sound like a Democrat,'' Senator Chuck Schumer, a New York Democrat, said in a news conference minutes after the president spoke. ``The president has gotten out of his ideological straitjacket and seen that in times of crisis'' the federal government should help troubled citizens.
Schumer said U.S. Treasury Secretary Henry Paulson indicated interest in allowing Fannie Mae and Freddie Mac, the two largest U.S. mortgage finance companies, to exceed federal limits on their combined $1.4 trillion mortgage portfolios so long as they channel the extra financing to help borrowers refinance and avoid foreclosure.
``Paulson said he would be interested in that,'' Schumer said in a news conference today in Washington. He said he talked to Paulson today about housing and mortgage finance. Under the proposal, the federal government would raise the companies' portfolio limits ``but only for specific loans for homeowners about to go into foreclosure.''
The Treasury ``continues to believe that raising Fannie and Freddie's portfolio caps will not address the concerns in the subprime market,'' Treasury spokeswoman Jennifer Zuccarelli said. Paulson ``is interested in hearing all ideas on how to help subprime borrowers.''
Dodd Legislation
Christopher Dodd of Connecticut, a Democrat and chairman of the Senate Banking Committee, said in a statement he supported Bush's plan, adding, ``we need to explore every avenue'' to aid ``distressed homeowners.'' Dodd, in an interview with CNBC last week, said he plans to move legislation next month that would enable more borrowers to avoid subprime mortgages and rely on loans insured by FHA.
Paulson declined to estimate how many people might be helped by the administration's proposal. ``To me, success is helping as many people as possible,'' he said in an interview with National Public Radio. ``I don't want to overpromise and underdeliver. We can't make this problem go away. We can't keep everyone in their home.''
Bush said that ``in the coming days'' the FHA will begin a new program called FHA Secure that will permit homeowners who have a good credit rating but can't afford their current payments to refinance into FHA-insured mortgages.
`Reaching Out'
``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. ``We are going to start reaching out and make sure people know this option is available to them.''
Henry Savage, president of PMC Mortgage Corp. in Alexandria, Virginia, said, ``It's very well-timed that FHA emerge as a viable alternative to conventional lenders.''
``They're stepping in and providing mortgage products that they used to offer but had been taken over in the last 20 years by conventional lenders,'' he said. ``Now that private lenders are dropping out of that, FHA is stepping in.''
``It will especially help the bigger cities where home prices are highest, but it will help almost any area,'' Savage said.
In the first quarter of this year, the FHA serviced about 3 million mortgages, 12 percent of which were delinquent or in foreclosure. Nationwide, the Washington-based Mortgage Bankers Association reported about 44 million mortgages in existence with an overall delinquency rate of 4.8 percent.
Bush's plan would affect borrowers who are at least 90 days behind in payments and let them stay in their homes.
Tax Relief
The president gave no estimate on the cost of his proposals. He said he also will support proposals in Congress to provide tax relief for homeowners who refinance.
U.S. home resales fell in July to an annual pace of 5.75 million, the slowest since November 2002, the National Association of Realtors reported on Aug. 27. Sales have declined for five consecutive months.
About 14 percent of banks raised standards for mortgages to their most creditworthy borrowers, and 56 percent made it more difficult for people with limited or tainted records to get loans, according to a Federal Reserve survey of senior loan officers in mid-July.
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