President Bush Sets Forth Principles For Appropriate Government Action To Address The Economy And Housing Market

Today, President Bush delivered remarks at the Economic Club in New York and discussed the appropriate role the government must play to strengthen the economy and protect our communities. 

The U.S. economy is structurally strong, but we are experiencing a period of economic challenge.  Concern over the housing market has shaken the broader economy, but the President believes the government can respect the principles of the free market, while also taking sensible, focused action to help responsible homeowners weather a rough patch. 

• The President remains deeply concerned about the housing issue and strongly believes that any government policies must be responsible.  Government actions often have far-reaching and unintended consequences.  Any time the government intervenes in the market, it must do so with clear purpose and great care. 

 Many of the sweeping government solutions that have been proposed recently would only serve to make a complicated problem even worse, and end up hurting far more homeowners than they would help.

• It does not make any sense to spend billions of dollars buying up homes that are already empty when the goal is to help more Americans keep their homes.  One bill proposed in Congress would provide $4 billion for State and local governments to buy up abandoned and foreclosed homes.  If mortgage lenders believe that the government will intervene, they will be less likely to help borrowers work out their mortgages. 

• Providing bankruptcy courts the authority to reduce mortgage debts by judicial decree would lead to higher interest rates on future loans, further rattle credit markets, and be unfair to the millions of homeowners who have made the hard spending choices necessary to pay their mortgages on time every month.  If a bank thinks that judges might step in and write down the value of home loans, they would charge higher interest rates to cover that risk.

• In addition, any action the government would take to artificially prop up home prices would hurt millions of Americans – including those who have been priced out of the market because of the irresponsible decisions of speculators and others that inflated home prices.  The market is now in the process of correcting itself, and delaying that correction would only prolong the problem.

 The Administration Has Taken Strong Steps To Assist Homeowners Who Have Made Responsible Buying Decisions And Can Avoid Foreclosure With A Little Help

1.  In August, the President and his Administration launched a new initiative at the FHA called FHASecure.  FHASecure expands the FHA’s ability to offer refinancing by giving it the flexibility to work with homeowners who have had good credit histories but cannot afford their current payments.  Since FHASecure was announced, FHA has helped more than 120,000 families stay in their homes by refinancing about $17 billion worth of mortgages.  By the year’s end, this program is expected to have helped nearly 300,000 homeowners in all.   
   
   • FHA recently announced its expanded efforts to reach at-risk homeowners by sending letters to 850,000 Americans who face adjustable rate resets and who would likely qualify for an affordable FHA-backed loan. 280,000 letters was sent the first week of February, and another 570,000 letters will be sent in coming months.
      
2. Secretaries Paulson and Jackson facilitated the creation of the private-sector HOPE NOW Alliance, which has developed multiple strategies to help distressed homeowners.  HOPE NOW is a cooperative effort among mortgage counselors, servicers, investors, lenders, and trade associations to maximize outreach efforts to struggling homeowners in distress and to help homeowners who want to stay in their homes.  HOPE NOW membership covers over 90 percent of the subprime mortgage market.  
   •  HOPE NOW reports that the number of borrowers receiving work-outs is rising faster than the number entering foreclosure.  The loan modification rate doubled in the fourth quarter of 2007, compared to the rate in the third quarter. 
   •  As of the fourth quarter of 2007, 92 percent of American homeowners with mortgages – about 51 million households – were paying their mortgages on time.  Only two percent were in foreclosure. 
   • Last month, HOPE NOW announced the Project Lifeline initiative, which will help even more Americans stay in  their homes by giving servicers a new tool to reach out to seriously delinquent homeowners.  Project Lifeline offers, where appropriate, to “pause” the foreclosure process for 30 days while other longer-term solutions are explored.  
   • In the last three months, HOPE NOW members have sent more than one million letters to at-risk homeowners who had previously been unresponsive to other outreach efforts.  Before HOPE NOW, the response rate for letters like this was about two percent; now, the response rate to Alliance letters is closer to 20 percent.  This higher response rate means almost 200,000 borrowers have reached out to HOPE NOW for help.
   • All HOPE NOW servicers are contacting subprime adjustable-rate mortgage borrowers 120 days before their interest rate resets.  It is important to remember that at-risk borrowers need to do their part and respond to these outreach efforts.
   • HOPE NOW’s nationwide hotline (888-995-HOPE) has been publicized and expanded.  The HOPE NOW hotline is staffed by hundreds of trained foreclosure prevention counseling professionals who are able to work with at-risk borrowers to evaluate their situation and to help connect them with mortgage servicers to work on a possible solution. 
   • Servicers and investors are now providing funds for housing counseling; previously, the Federal Government and foundations were the main sources. 
3. The Federal Government is acting to make the housing market more transparent and fair in the long run.   In order to increase safeguards for homeowners, Federal regulators have proposed new guidelines that would require lenders to provide borrowers with complete and accurate information about their mortgages – including the possibility of changes in future interest rates. 

 The Administration Is Taking Additional Long-Term Steps To Protect American Homeowners 

• To help American homeowners better understand their mortgages and allow them to shop for the best loan offer, Housing and Urban Development Secretary Alphonso Jackson today proposed reforms to the Real Estate Settlement Procedures Act (RESPA).  Under this proposal, home buyers would be presented for the first time ever with a standard form disclosing the important aspects of a loan. This new disclosure would ensure that home buyers are provided, early in the buying process, complete, accurate, and understandable information about their mortgages. This would include the interest rate, loan amount, fees, and the possibility that their monthly payments could rise dramatically over time.  This proposal will make the home buying process more transparent and reduce the likelihood that today’s lending problems would happen again in the future.  Specifically, it would:
  • Consolidate closing costs into major categories to prevent “junk fees” and display total estimated settlement charges prominently on the first page, allowing consumers to easily compare loan offers and shop for the best deal. 
  • Specify what charges can and cannot be changed at settlement so home buyers are not surprised.
  • Save the typical homebuyer almost $700 in closing costs, according to HUD estimates. Homebuyers regularly pay over $5,000 in closing costs, totaling more than $67 billion each year.
• Treasury Secretary Henry Paulson yesterday announced moves that would raise consumer and investor confidence in our markets without constricting capital markets.  The recommendations would:
  • Strengthen oversight of the mortgage industry.
  • Improve the way credit ratings are determined for securities.
  • Ensure proper risk management at financial institutions.

The Federal Reserve Has Taken Action To Bolster The Economy 

 Today, with the support of the Treasury Department and the SEC, the Federal Reserve took additional actions to mitigate disruptions to our financial markets.  Earlier this week, the Fed announced a major move to ease stress in the credit market by adding liquidity, because some financial institutions that borrowed money to buy securities in the housing industry now must repair their balance sheets before they can make further loans.  These actions will help financial institutions continue to make necessary credit more available.

 Congress Must Now Build On These Efforts By Passing Responsible Legislation To Address Problems In The Housing Market

 President Bush continues to call on Congress to quickly pass responsible legislation modernizing the Federal Housing Administration.  A modernized FHA that is granted appropriate downpayment and pricing flexibility could help even more families without the need for more taxpayer funds.  Passage of this bill is the appropriate next step to help bring stability to the housing market.  The President first sent his FHA modernization bill to the Hill in April 2006 – now it is time for Congress to act and ensure that this program, created during the New Deal, remains a good deal in the 21st century.

 Congress needs to pass legislation permitting State and local governments to help troubled borrowers by issuing tax-exempt bonds for refinancing existing home loans.  Under current law, cities and States can issue tax-exempt bonds to finance new mortgages for first-time homebuyers, but States are unable to do the same for homeowners seeking to refinance.

 Congress needs to pass legislation to reform the regulation of Government Sponsored Enterprises (GSEs) like Freddie Mac and Fannie Mae.  The statutory mission of the Housing GSEs is to provide liquidity to the secondary mortgage market, and it is vital that they operate safely and soundly. The President has called on Congress to pass legislation that strengthens the independent regulator of the GSEs and ensures they are adequately capitalized and focused on their mission.