President Bush on FHA & Foreclosures
August 31st, 2007
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THE PRESIDENT: Good morning. Thank you for joining me. Secretary Paulson and Secretary Jackson gave me an update on the strong fundamentals of our nation’s economy. Economic growth is healthy, and just yesterday we learned that our economy grew at a strong rate of 4 percent in the second quarter of this year. Wages are rising, unemployment is low, exports are up, and steady job creation continues.
We also had a good discussion about the situation in America’s financial markets. The markets are in a period of transition, as participants reassess and re-price risk. This process has been unfolding for some time, and it’s going to take more time to fully play out. As it does, America’s overall economy will remain strong enough to weather any turbulence.
One area that has shown particular strain is the mortgage market, especially what’s known as the sub-prime sector of the mortgage market. This market has seen tremendous innovation in recent years, as new lending products make credit available to more people. For the most part, this has been a positive development, and the reason why is millions of families have taken out mortgages to buy their homes, and American homeownership is at a near all-time high.
Unfortunately, there’s also been some excesses in the lending industry. One of the most troubling developments has been the increase in adjustable rate mortgages that start out with a very low interest rate and then reset to a higher rate 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. 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.
Complicating the situation for borrowers is the nature of today’s mortgage market. In many cases, the neighborhood banker who issued a family’s mortgage does not own that mortgage for long. Instead, mortgages are sold as securities on the global market. And that makes it harder for the lender and borrower to renegotiate.
The recent disturbances in the sub-prime mortgage industry are modest — they’re modest in relation to the size of our economy. But if you’re a family — if your family is one of those having trouble making the monthly payments, this problem doesn’t seem modest at all. I understand these concerns, and therefore, I’ve made this a top priority to help our homeowners navigate these financial challenges, so that many families as possible can stay in their homes. That’s what we’ve been working on, a plan to help homeowners.
We’ve got a role, the government has got a role to play — but it is limited. A federal bailout of lenders would only encourage a recurrence of the problem. 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. 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. So I strongly urge lenders to work with homeowners to adjust their mortgages. I believe lenders have a responsibility to help these good people to renegotiate so they can stay in their home. And today I’m going to outline a variety of steps at the federal level to help American families keep their homes.
First, we’re going to work to modernize and improve the Federal Housing
Administration — that’s known as the FHA. The FHA is a government agency
that provides mortgage insurance to borrowers through a network of private
sector lenders. Sixteen months ago I sent Congress an FHA modernization
bill that would help more homeowners qualify for this insurance by lowering
down-payment requirements, by increasing loan limits and providing more
flexibility in pricing. These reforms would allow the FHA to reach
families that need help, those with low incomes and less-than-perfect
credit records or little savings.
Last year the House passed this bill with more than 400 votes.
Unfortunately, Congress hasn’t acted this year. It would be a good task
for Congress to come and get FHA modernization done so that we can help
these people refinance their homes, so more people can stay in their homes.
I look forward to signing a bill as quickly as possible.
In the coming days, the FHA will launch a new program called FHA-Secure.
This program will allow American homeowners who have got good credit
history but cannot afford their current payments to refinance into
FHA-insured mortgages. This means that many families who are struggling
now will be able to refinance their loans, meet their monthly payments and
keep their homes. In other words, we’re going to start reaching out and
making sure people know that this option is available to them so they can
stay in their homes.
Second, I’m going to work with Congress to temporarily reform a key housing
provision of the federal tax code, which will make it easier for homeowners
to refinance their mortgages during this time of market stress. Under
current law, homeowners who are unable to meet their mortgage payments can
face an unexpected tax bill. For example, 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. 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.
So I believe we need to change the code to make it easier for people to
refinance their homes and stay in their homes. And to this end, I’ve
called Senator Debbie Stabenow of Michigan and told her that she’s on to a
good idea with the bill that she and George Voinovich have submitted to the
Senate. The House has got Rob Andrews of New Jersey and Ron Lewis of
Kentucky introducing legislation that is a positive step toward changing
the tax code so people aren’t penalized when they refinance their homes.
With a few changes in the Senate version and the House version, this
administration can support these bills, and we look forward to working with
them — the senators and the members of the House — to pass common-sense
legislation to help us address this issue.
Third, my administration will launch a new foreclosure avoidance initiative
to help struggling homeowners find a way to refinance. Secretary Jackson
and Secretary Paulson are going to reach out to a wide variety of groups
that offer foreclosure counseling and refinancing for American homeowners.
These groups include community organizations like NeighborWorks and
mortgage lenders and loan services, and the FHA, as well as
government-sponsored enterprises like Fannie Mae and Freddie Mac. These
organizations exist to help people refinance, and we expect them to do
See, it’s easy for me to stand up here and talk about refinancing — some
people don’t even know what I’m talking about. And we need to have a
focused effort to help people understand the mortgage financing options
available to them, or to identify homeowners before they face hardships and
help them understand what’s possible.
Finally, the federal government is taking a variety of actions to make the
mortgage industry more transparent, more reliable and more fair, so we can
reduce the likelihood that these kind of lending problems won’t happen
again. Federal banking regulators are improving disclosure requirements to
ensure that lenders provide homeowners with complete and accurate and
understandable information about their mortgages, including the possibility
that their monthly payments could rise dramatically. In other words, we
believe that if the consumer is better informed, these kind of problems
won’t arise — are less likely to arise in the first place. Banking
regulators are also strengthening lending standards to help ensure that
borrowers are not approved for mortgages larger than they can handle.
This administration will soon issue regulations that require mortgage
brokers to fully disclose their fees and closing costs. We’re pursuing
wrongdoing and fraud in the mortgage industry through the Department of
Housing and Urban Development, the Department of Justice, the Federal Trade
Commission, and other agencies. In other words, if you’ve been cheating
somebody we’re going to find you and hold you to account. And we’ll
continue to do our part to help improve all aspects of the mortgage
marketplace that is really important to this economy of ours.
With all the steps I’ve outlined today we will deliver help and hope to
American families who need it. We’ll help guard against future problems in
the housing sector. We’ll reaffirm the vital place of homeownership in our
nation. When more families own their own homes, neighborhoods are more
vibrant and communities are stronger, and more people have a stake in the
future of this country.
Owning a home has always been at the center of the American Dream.
Together with the United States Congress I will continue working to help
make that dream a reality for more of our citizens. Thank you.
Q Sir, what about the hedge funds and banks that are overexposed on the
sub-prime market? That’s a bigger problem. Have you got a plan?
THE PRESIDENT: Thank you.
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