Bush, Paulson & Bernanke object to mortgage bailout programs

WASHINGTON (Thomson Financial) - President George Bush and the two highest economic officials in the US government all objected strongly today to plans in Congress for changing bankruptcy laws to protect homeowners caught up in the mortgage meltdown. The idea of allowing bankruptcy judges to restructure loans 'wouldn't be fair to millions who pay their mortgages each month on time and it would be unfair to future homeowners,' Bush told reporters summoned to the White House for a morning press conference. Later in the morning, Federal Reserve Board Chairman Ben Bernanke highlighted potential unfairness, telling Congress that allowing judges to ease the terms of some mortgages would 'probably' add to the cost of all mortgages. 'I don't know how much it would add,' Bernanke told the Senate Banking Committee. 'I think it would probably add something, because collateral would be less secure,' he said. Despite a looming veto threat from the White House, the Senate may vote on legislation next week that would allow bankruptcy judges to adjust loans in order to help keep people in their homes. US lenders have also opposed the proposal as something that would lead to higher mortgage costs for all borrowers, since lenders would have to insure against the possibility of only partial repayment of mortgage loans. Senator Evan Bayh, a Democrat from Indiana, defended the proposal today by arguing that only existing mortgages could be altered under the bill and therefore should not affect future rates prospective borrowers would have to pay. But Bernanke said the bill would raise the question of whether Congress would try to broaden the measure, which could lead to mortgage cost increases. For that reason, Bernanke said he would 'decline to endorse' this particular legislative proposal. In the early afternoon, Treasury Secretary Henry Paulson jumped into the fray, releasing remarks from a speech to be given tonight at the Economic Club of Chicago. 'So while some in Washington are proposing big interventions, most of the proposals I've seen would do more harm than good,' Paulson is scheduled to say, according to the excerpts released to reporters in Washington. 'Im not interested in bailing out investors, lenders and speculators,' he added. Instead, Paulson is pushing harder for both lenders and borrowers to avoid delays in mortgage relief programs already going on. Paulson noted that 93 pct of mortgages are paid on time and only 2 pct are in foreclosure. Treasury wants lenders and servicers who have already committed to restructuring for qualifying homeowners to speed up the process and Paulson is using tougher language. January data on how the mortgage servicers are performing is due in soon, and 'I'll be examining the results closely,' Paulson is to say. Bernanke also complained that mortgage servicers are not yet ready to deal with the 'tsunami' of foreclosures that is underway.

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YouTube | February 14, 2008

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