USA/FILE: President George W. Bush outlines plan to help homeowners financially crippled by mortgage debt

U.S. President George. W. Bush details a package of policies intended to help struggling U.S. homeowners keep their homes amid fears that the mortgage collapse could spark a further wave of defaults and foreclosures. U.S. President George W. Bush tried on Friday (August 31, 2007) to calm financial market turmoil from the credit crisis by announcing proposals intended to prevent homeowners from defaulting on risky mortgages. Rising U.S. defaults on so-called subprime mortgages to less credit-worthy borrowers have caused volatility in financial markets around the world and raised concerns that the U.S. economy could fall into recession. In trying to soothe those worries, Bush said the U.S. economy was healthy enough to weather the credit crisis and that the subprime market problems represented only a "modest" part of the economy. But he emphasized that it was not the federal government's job to bail out the mortgage lending industry, a comment that caused U.S. stock prices to pare gains. Federal Reserve Chairman Ben Bernanke echoed similar sentiments at a central bankers' symposium in Jackson Hole, Wyoming. Bernanke's speech spurred speculation for a benchmark interest rate cut next month. "Fed Chairman Ben Bernanke today was really pretty direct in saying that this problem that started in the sub-prime sector has become a contagion that is breathing into higher value loans in the prime sector and beyond," said Jared Bernstein of Economic Policy Institute. Bernstein monitors economic and labour trends and served as the deputy chief economist at the U.S. Department of Labor during the Clinton administration. Bush urged lenders to work with homeowners to renegotiate their mortgages to prevent default. "There are many Americans homeowners who could get through this difficult time with a little flexibility from their lenders or a little help from their government," Bush said in a statement in the Rose Garden. He called on Congress to approve legislation he proposed last year to modernize the Federal Housing Administration, which provides mortgage insurance to borrowers through a network of private sector lenders. The FHA will soon launch a new program called "FHA Secure" to allow homeowners with good credit history, but who cannot afford their current payments, to refinance into FHA-insured mortgages, Bush said. Democrats have accused the administration of the being insensitive toward the plight of a rising tide of poorer Americans facing the threat of foreclosure. People who have missed mortgage payments are now ineligible for FHA insurance. In the president's plan, they would be eligible if they fall behind only because the amount they are required to pay each month increases, as is now happening with many mortgages issued from 2004 to 2006. Officials expect that 2 million mortgages made to risky, or subprime, borrowers will adjust upward in the next two years, with a total value of more than $500 billion.

ITN Source | September 1, 2007

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