Bush to Provide Aid to Homeowners Caught in the Sub-prime Cross Hairs, Fed Chairman Speaks About Credit Market
President Bush will ask Congress to support plans to allow the government-basked mortgage issuer, Federal Housing Administration (FHA), to guarantee loans for borrowers who are more than 90 days behind with their payments.
This move by the White House is in effort to help millions of homeowners with sub-prime mortgages avoid defaulting. Sub-prime mortgages are higher risk loans offered to people with poor credit ratings or on low incomes. Rising numbers of defaults on such loans have hit banks, which have bought debt that include these loans.
Mr. Bush also will ask Congress to suspend, for a limited period, an Internal Revenue Service provision that penalizes borrowers who refinance the terms of their mortgage to reduce the size of the loan or who lose their homes to foreclosure. And he announced an initiative, to be led jointly by the Treasury and Housing and Urban Development departments, to identify people who are in danger of defaulting over the next two years and work with lenders, insurers and others to develop more favorable loan products for those borrowers.
President Bush is also is instructing Treasury Secretary Henry Paulson to look into the subprime problem and to look into ways to prevent such a crisis in the mortgage market happening again, including the need for strong enforcement of laws that prevent irresponsible lending.
In addition, US Federal Reserve Chairman Ben Bernanke at economic conference in Jackson Hole, Wyoming, discussed the ongoing housing market and credit woes in a speech to the annual gathering of international central bankers and economists.
"Developments in financial markets can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account when determining policy," Mr. Bernanke said.
The Fed "stands ready to take additional actions" to boost liquidity, he said, and "will act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets."
Analysts will be looking out for indications that the central bank's rate-setters will cut the cost of borrowing by one quarter of a percentage point at their next meeting on 18 September.
The Fed has so far released billions of dollars of emergency funds into the financial system in an attempt to ease fears over the lack of available credit. It has also cut the interest rate at which it lends to banks.
Published on August 31, 2007
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