President Bush offered federal help Friday to aid thousands of home mortgage holders at risk of foreclosure.
"We will deliver help and hope to American families who need it," he said.
The president unveiled several initiatives and reforms to help homeowners with risky mortgages keep their homes and discuss ways to prevent problems from arising in the future.
In recent months, 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.
The president's initiatives were not without limits, however, saying that it was not the federal govenment's job to bailout teetering lenders.
Federal Reserve Chairman Ben Bernanke, speaking at a symposium in Wyoming, said that the Fed is keeping close tabs on the problem, which has roiled investors in the United States and around the globe.
"It is not the responsibility of the Federal Reserve — nor would it be appropriate — to protect lenders and investors from the consequences of their financial decisions," Bernanke said. "But 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."
Many believe the odds are growing that the Fed will cut its most important interest rate, now at 5.25 percent, by at least one-quarter percentage point on or before Sept. 18, its next regularly scheduled meeting. The Fed hasn't lowered this rate in four years.
The Fed "will act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets," Bernanke said.
President Bush said lenders have a responsibility to help Americans renegotiate so they can stay in their home. Among his initiatives were changes to the tax code and plans to urge lenders to work with home owners to renegotiate loans.
The administration is moving to modernize and improve the Federal Housing Administration (FHA), which provides mortgage insurance to borrowers through a network of private-sector lenders.
Under the reforms, the agency will launch a new program called FHA Secure, which allows homeowners who have a good credit history but cannot afford their current payments to refinance into FHA-insured mortgages.
"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," the president said.
President Bush also said he would work with Congress to revise a key housing provision of the federal tax code, which will make it easier for homeowners to refinance their mortgages.
A new foreclosure avoidance initiative is also due to be unveiled to help struggling homeowners find a way to refinance.
The administration will reach out to a wide variety of groups that offer foreclosure counseling and refinancing for American homeowners.
President Bush cited community organizations such as NeighborWorks, mortgage lenders, loan services, the FHA, and government-sponsored enterprises Fannie Mae and Freddie Mac.
"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 to help them understand what's possible," Bush said.
He also addressed how convoluted the mortgage process can be, and pledged actions to make it the industry "more transparent, more reliable and more fair," in order to avoid the recurrence of mortgage problems.
Banking regulators will clarify information about their mortgages, including the possibility that their monthly payments could rise dramatically. They will also strengthen lending standards to make sure borrowers aren't approved for mortgages larger than they can handle.
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.
While problems were triggered largely by heightened concerns about higher-risk "subprime" mortgages made to people with blemished credit histories or low incomes, Bernanke said that "global financial losses have far exceeded even the most pessimistic projections of credit losses on those loans."
To stabilize wobbly markets, the Fed on Aug. 17 sliced its lending rate to banks by a half percentage point, to 5.75 percent. It also has pumped billions of dollars into the financial system to help banks and other institutions get over the credit hump and carry out their business.
The economy enjoyed a strong revival in the spring, although the housing and credit market troubles have darkened prospects considerably since then. The Commerce Department reported Thursday that the gross domestic product grew at an annual rate of 4 percent in the second quarter — the strongest showing in more than a year.
But that growth could be the best showing for some time as the economy continues to be battered by the worst housing slump in 16 years and a widening credit crisis that has sent financial markets on a roller-coaster ride in recent weeks.
From NPR reports and The Associated Press
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