President Bush will propose reforms on Friday intended to help homeowners with subprime mortgages avoid default, his first public step to address a crisis that has created turmoil in financial markets around the world.
“He will also discuss reform efforts to prevent these kinds of problems from arising in the future,” a senior administration official told Reuters on condition of anonymity.
Many analysts warn that a spreading credit crisis could drag the U.S. economy into recession but the Bush administration has repeatedly said that U.S. economic fundamentals are healthy and that global growth is robust.
Financial markets in the United States and abroad have been volatile in recent weeks as U.S. defaults have risen on so-called subprime mortgages to less credit-worthy borrowers, and questions have arisen about whether loans that have been bundled into securities sold overseas may also fail.
The Federal Reserve has taken steps to increase liquidity in markets and faces calls for interest-rate cuts to head off a broader credit squeeze that could drag economic growth down.
Bush, in a statement scheduled for 11:10 a.m. EDT in the White House Rose Garden, will discuss the need for Congress to pass Federal Housing Administration reform legislation aimed at giving the agency the flexibility to help subprime mortgage borrowers, two administration officials told Reuters.
One move will be an administrative change to allow the Federal Housing Administration to guarantee loans for borrowers at least 90 days behind in mortgage payments to help them avoid foreclosure, the Wall Street Journal reported from a briefing given to a few newspapers.
The Federal Housing Administration was founded in the 1930s Depression years after the U.S. banking system failed and millions of Americans were made homeless. Now its mission is to foster home ownership by insuring mortgage loans, especially for poorer Americans who face difficulty meeting terms for conventional loans.
The risk of a credit squeeze stemming from rising defaults on subprime mortgages has fueled worry that consumers will trim spending at a rate that could tip the economy into recession.
Bush will urge the Democratic-led Congress to work with him in a bipartisan way to reform the tax code to help troubled borrowers revise their loans, administration officials said.
Bush will ask Congress to temporarily suspend a tax provision that has left some troubled homeowners with large tax bills, the Wall Street Journal reported.
Bush is also expected to direct Treasury Secretary Henry Paulson and Housing Secretary Alphonso Jackson to work on an initiative to help troubled mortgage holders obtain services and products needed to prevent default, officials said.
He will discuss the need for rigorous enforcement of predatory lending laws and strengthening lending practices, they said.
Stock prices fell on Thursday on concern that credit market upheaval was spreading, with the Dow Jones industrial average (DJI) down 50.56 points to close at 13,238.73.
The rising home-mortgage default rate has been seized upon by Democrats who say the Bush administration failed to make sure that regulators enforced rules that oblige lenders to make sure that borrowers could repay their loans.
Hundreds of billions of dollars worth of the riskiest subprime loans carry low initial rates that will adjust, or “reset” at higher rates, between now and the end of 2008.
That is expected to push the default rate up and could create a potentially devastating political issue for Republicans gearing up for the 2008 elections.
Federal Reserve Chairman Ben Bernanke, who has been criticized for being too slow to take sterner measures to stamp out the smoldering credit crisis, is scheduled to speak on Friday morning about housing and monetary policy shortly before Bush’s statement.