By DEB RIECHMANN, Associated Press Writer 13 minutes ago
President Bush outlined ways the federal government can help troubled borrowers keep their homes Friday in an effort to address rising foreclosures fueled by the mortgage crisis.
The administration's first attempt at dealing with a wave of defaults is not aimed at bailing out lenders, however.
"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."
The U.S. economy enjoyed a strong revival in the spring but since then has been threatened by the worst housing slump in 16 years and a widening credit crisis that has sent financial markets on a roller coaster ride.
The president insisted that the economy was strong and could weather turbulence in the 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."
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.
Bush said the Federal Housing Administration, a government agency that provides mortgage insurance to borrowers through lenders in the private sector, would launch in coming days a program called FHA Secure. The program would let homeowners who have good credit histories but can't afford their current mortgage payments to refinance into mortgages insured by the FHA.
"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.
Bush also urged Congress to modernize and improve the FHA so more homeowners could qualify for the mortgage insurance provided by the agency. Last year the House passed legislation to modernize FHA, but Congress has not yet sent a bill to the White House. "I look forward to signing a bill as quickly as possible," Bush said.
Bush also pledged to work with Congress to reform a key housing provision of the federal tax code, which will make it easier for homeowners to refinance their mortgages.
"Let's say the value of your house declines by $20,000 and your adjustable rate mortgage payments have grown to a level you cannot afford," Bush said. "If the bank modifies your mortgage and forgives $20,000 of your loan, the tax code treats that $20,000 as taxable income. When your home is losing value and your family is under financial stress, the last thing you need to do is to be hit with higher taxes."
Bush also said the administration would launch a new foreclosure avoidance initiative to help homeowners figure out a way to refinance. He said Housing Secretary Alphonso Jackson and Treasury Secretary Henry Paulson would reach out to groups that offer foreclosure counseling and refinancing assistance for homeowners.
And he said the federal government was taking actions to make the mortgage industry more transparent, more reliable and fair to reduce the likelihood of these lending problems happening again.
Sen. Charles Schumer, D-N.Y., said he was pleased to hear Bush and Federal Reserve Chairman Ben Bernanke address the escalating crisis in the mortgage market. "The current situation is simply out of hand. It's bad and it's getting worse," he said.
He said Bush's proposals — increasing FHA loans, reducing down payment requirements on loans to be insured by the FHA, eliminating tax liabilities for foreclosure victims — were all Democratic proposals.
Schumer said additional steps must be taken — increased funding for non-profits that help people facing foreclosure to refinance, allowing Freddie-Fannie to spend more, federal regulation of mortgage brokers.
John M. Robbins, chairman of the Mortgage Bankers Association, said the president's attention to turmoil in the mortgage markets and the plight of homeowners facing foreclosure will help push Congress to reform FHA.
"It is essential that the Federal Housing Administration have the tools and flexibility to adjust its products and programs to meet the evolving needs of borrowers," Robbins said.
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