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Bush's Mortgage Bailout Remarks

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December 06, 2007 – Comments (11)

Here's the entire thing. I'll get to pointing out the lies and the idiocy in a comment.

BUSH: Good afternoon.

Now, before turning to the situation in the housing market, I send my sympathy to the families of those murdered in Omaha, Nebraska, yesterday. I was in Omaha just before the shooting took place, and I know what a difficult day it is for that fine community.

The victims and their loved ones are in the prayers of Americans. The federal government stands ready to help in any way we can, and our whole nation grieves with the people of Omaha.

I just had an important discussion on the housing market with Secretary Paulson and Secretary Jackson and members of the mortgage industry. The housing market is moving through a period of change.

In recent years, innovative mortgage products have helped millions of Americans afford their own homes, and that's good. Unfortunately, some of these products were used irresponsibly.

Some lenders made loans that borrowers did not understand, especially in the subprime sector. Some borrowers took out loans they knew they could not afford. And, to compound the problem, many mortgages are packaged into securities and sold to investors around the world.

So when concerns about subprime loans began to mount -- began to mount, uncertainty spread to the broader financial markets.

Secretary Paulson and Secretary Jackson and Chairman Bernanke are monitoring developments in the housing market and working to limit the disruption to our overall economy.

Data released this morning confirmed the difficulty facing the housing market. Yet, one reason for confidence is that the downturn in housing comes against the backdrop of solid fundamentals in other areas, including low inflation, a healthy job market, record high exports.

America's economy has proved itself highly resilient, and it is strong and it is flexible and it is dynamic enough to weather this storm.

For individual homeowners, the problem is more difficult. Many of those feeling financial stress have an adjustable rate mortgage, which typically starts with a lower interest rate and then resets to a higher rate after a few years.

Many of those borrowers cannot afford the higher payments and now some are fearing foreclosure, which is a terrible burden for hardworking families and a source of concern for communities and neighborhoods across our country.

The rise in foreclosures would have negative consequences for our economy. Lenders and investors would face enormous losses. So they have an interest in supporting mortgage counseling and working with homeowners to prevent foreclosure.

The government has a role to play as well. We should not bail out lenders, real estate speculators, or those who made the reckless decision to buy a home they knew they could never afford.

BUSH: Yet there are some responsible homeowners who could avoid foreclosure with some assistance. And in August, I announced a series of targeted actions to help them.

My administration has moved forward in three key areas.

First, we've launched a new initiative at the Federal Housing Administration called FHA Secure. This program gives the FHA greater flexibility to offset refinancing to homeowners -- to offer refinancing to homeowners who have good credit histories but cannot afford their current payments.

In just three months, the FHA has helped more than 35,000 people refinance. In the coming year, the FHA expects this program to help more than 300,000 families.

Second, in August, I asked Secretaries Paulson and Jackson to work with lenders and loan servicers and mortgage counselors and investors on an initiative to help struggling homeowners find a way to refinance.

They assembled a private sector group called Hope Now Alliance. The leaders are with us today.

Hope Now is an example of government bringing together members of the private sector to voluntarily address a national challenge, without taxpayer subsidies or without government mandates.

I'm pleased to announce that our efforts have yielded a promising new source of relief for American homeowners.

Representatives of Hope Now just briefed me on their plan to help homeowners who will not be able to make the higher payments on their subprime loan, once the interest rates go up, but who can at least afford the current starter rate.

Hope Now members have agreed on a set of industry-wide standards to provide relief to these borrowers in one of three ways: by refinancing the existing loan into a new private mortgage; by moving them into an FHA secure loan; or by freezing their current interest rate for five years.

Lenders are already refinancing and modifying mortgages on a case-by-case basis. With this systematic approach, Hope Now will be able to help large groups of homeowners all at once.

This will bring more relief to more homeowners more quickly.

Hope Now estimates there are up to 1.2 million American homeowners who could be eligible for this assistance.

BUSH: Public awareness is critical to this effort because the group can only help homeowners who ask for it.

So, Hope Now recently mailed hundreds of thousands of letters to borrowers falling behind on their payments, and they have set up a counseling hot line that Americans can call 24 hours a day.

I directed Secretaries Paulson and Jackson to expand the public awareness campaign. And I have a message for every homeowner worried about rising mortgage payments: The best you can do for your family is to call 1-800-995-HOPE (sic). That is 1-800-995-HOPE (sic).

Third, the federal government is taking several regulatory actions to make the mortgage industry more transparent, reliable and fair. Later this month, the Federal Reserve intends to announce stronger lending standards that will help protect borrowers.

Same time, HUD and the federal banking regulators are taking steps to improve disclosure requirements so that homeowners can be confident that they are receiving complete, accurate and understandable information about their mortgages.

As we take these steps, the Department of Justice will continue to pursue wrongdoing in the banking and housing industries so we can help ensure that those who defraud American consumers face justice.

These measures will help many struggling homeowners. And the United States Congress has the potential to help even more. Yet in three months since I made my proposals, the Congress has not sent me a single bill to help homeowners.

If members are serious about responding to the challenges in the housing market, they can start with the following steps: First, Congress needs to pass legislation to modernize the FHA.

In April 2006, I sent Congress an FHA modernization bill. This bill would increase access to FHA-insured loans by lowering downpayment requirements, allowing the FHA to ensure bigger mortgages in high-cost states and expand the FHA's authority to price insurance fairly with risk-based premiums.

BUSH: The bill could allow the FHA to reach an additional 250 thousand families who could not otherwise qualify for prime-rate financing.

Last year, the House passed the bill with more than 400 votes, and this year the House passed it again. Yet the Senate has not acted. The liquidity and stability that FHA provide the market are needed more than ever, and I urge the United States Senate to move as quickly as possible on this important piece of legislation.

Second, Congress needs to temporarily reform the tax code to help homeowners refinance during this time of housing market stress. Under current law, if the value of your house declines and your bank forgives a portion of your mortgage, the tax code treats the amount forgiven as taxable income.

When you're worried about making your payments, higher taxes are the last thing you need.

The House agrees and recently passed this relief with bipartisan support. The Senate has not responded. Simple reform could help many American homeowners in a hour of need, and the Senate should pass it as soon as possible.

Changing the tax code can also help state and local governments do their part to help homeowners. Under current law, cities and states can issue tax exempt bonds to finance new mortgages for first- time homebuyers.

My administration has proposed allowing cities and states to issue these tax-exempt mortgage bonds for an additional purpose: to refinance existing loans.

BUSH: This temporary measure would make it easier for state housing authorities to help troubled borrowers, and Congress should approve this quickly.

Third, Congress needs to pass money to support mortgage counseling. Nonprofit groups like Neighbor Works provides essential services by helping homeowners find affordable mortgage solutions and prevent foreclosures.

My budget requests nearly $120 million for Neighbor Works and another $50 million for HUD's mortgage counseling programs. Congress has had these requests since February, yet has not sent me a bill and they need to get the funding to my desk.

Fourth, Congress needs to pass legislation to reform government- sponsored enterprises like Freddie Mac and Fannie Mae. These institutions provide liquidity in the mortgage market that benefits millions of homeowners. And it is vital they operate safely and operate soundly.

So I've called on Congress to pass legislation that strengthens independent regulation of the GSEs, and ensures they focus on their important housing mission.

The GSE reform bill passed by the House earlier this year is a good start. But the Senate has not acted, and the United States Senate needs to pass this legislation soon.

The holidays are fast approaching and, unfortunately, this will be a time of anxiety for Americans worried about their mortgages and their homes. There's no perfect solution. But the homeowners deserve our help. And the steps I've outlined today are a sensible response to a serious challenge.

I call on Congress to move forward quickly and join with me in delivering relief to homeowners in need so we can keep our economy healthy and the American dream alive.

God bless.

11 Comments – Post Your Own

#1) On December 06, 2007 at 7:59 PM, Imperial1964 (98.28) wrote:

#1.  They're trying to bail out their banking buddies, not homeowners.

#2.  Not that he explicitly mentioned stabilizing housing prices, but that is one thing usually brought up in bailout arguments.  I still do not understand where higher home prices helps the average American.  Would higher automobile prices help the average American? 

Nobody is talking about saving Joe Sixpack from the auto sales slump.  What about all those poor folks who are losing equity in their three autos and a motorboat??

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#2) On December 06, 2007 at 8:17 PM, FundamentalGamma (54.33) wrote:

Wrong, it's not a bailout. No tax-payer funds are being used to bailout anyone. The investors holding mortgage-backed securities will be footing the bill. Anyways, less than 1% of the entire mortgage market is in default/foreclosure, so this subprime fiasco is being way overblown.

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#3) On December 06, 2007 at 8:38 PM, Imperial1964 (98.28) wrote:

Correct me if I'm wrong, but aren't states and cities being asked to sell tax-exempt bonds to bail out homeowners?

I don't think this is about the 1% that is in default.  It is about the several percent that will be in default.

The thing is, the majority of these subprime ARMs that are in default have not reset yet reset to higher rates.  And the bulk of the ARM resets aren't for another 6 months.  How much do you think forclosures will jump when the resets hit?

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#4) On December 06, 2007 at 8:46 PM, TMFBent (99.81) wrote:

Wrong, it's not a bailout. No tax-payer funds are being used to bailout anyone. The investors holding mortgage-backed securities will be footing the bill. Anyways, less than 1% of the entire mortgage market is in default/foreclosure, so this subprime fiasco is being way overblown.

Uh, I wouldn't go that far. Do you really think this won't cost anything? You actually think investors holding MBSs are going to "foot the bill?" You think they, and banks aren't going to pass on the costs through higher costs and fees on everything else down the line?

Taxpayer money IS at stake, not with this plan, but with the entire bailout mentality. Taxpayers fund and guarantee many of the sources of money the deadbeat lenders are tapping for credit, and they foot the bill for the inflation tax that this free money extravaganza imposes. Also, they'll be taxed directly if Bush and Paulson get their wish on municipal bonds for bailouts. Moreover, Congress is working on legislation that would not tax bank loan forgiveness (a real source of income) as is currently the law -- with good reason. That shortfall will come out of everyone elses pockets, either now or years down the road, since Bush and Congress probably don't have the guts to raise taxes elsewhere to pay for the tax vacation they're planning for the irresponsible.

Final, as Imperial noted, there are TONS more ARMs coming up for reset, not all subprime. This program does less than was originally hinted, but it's still a bad idea.

Rip the bandaid off fast, get the foreclosed properties on the market, people and businesses who didn't blow money on overpriced garbage can take care of them with a real market solution, have the recession that's overdue, and move on. 

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#5) On December 06, 2007 at 10:07 PM, devoish (98.26) wrote:

This is GW Bush & Co. we are talking about here. When all is said and done the result will be very few people getting help. There will be weaker lending guidelines for Freddie and Fannie, so the banks can more easily pass on the risk of poor lending practices. It will be lowered interest rates to preserve the solvency of banks, at the expense of inflation. And it will still leave gov't and pension investments lost on formerly AAA rated securities which increased taxes will replace. And then he will leave for Dubai.

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#6) On December 06, 2007 at 10:31 PM, retailsails (94.72) wrote:

There is strict legal language in most of these deals that state the servicer cannot modify more than 5% of the loans without consent of the bondholders (usually senior class) - do you think they will just take the govt's word for it that they will be better off?  Or do you think they all sue and this gets bogged down in courts sometime next year?  Also, do you realize how much time it will take to go through all these loans just to figure out who qualifies - the new FHA program has only helped 35,000 people so far, out of a supposed 200,000 who are eligible, yet there are 100,000 ARM resets every month from now until the end of '08.  Is this even a band-aid on a gaping wound?

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#7) On December 06, 2007 at 10:41 PM, devoish (98.26) wrote:

This is GW Bush & Co. we are talking about here. When all is said and done the result will be very few people getting help. There will be weaker lending guidelines for Freddie and Fannie, so the banks can more easily pass on the risk of poor lending practices. It will be lowered interest rates to preserve the solvency of banks, at the expense of inflation. And it will still leave gov't and pension investments lost on formerly AAA rated securities which increased taxes will replace. And then he will leave for Dubai.

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#8) On December 07, 2007 at 1:07 AM, MakeItSeven (32.13) wrote:

It's oxymoron, typical of this admin.  I still think the only people this scam of a plan is going to bail out is the Bush admin themselves, just to buy them enough time to dump the whole mess onto the next admin.

Firstly, the bubble was caused by speculators and the clearly-unqualified buyers creating an artificial demand which drove the home prices up (even beyond the semi-artificial demand caused by the 1% funds rates).  These people won't be helped with this plan.  That's good but then they will leave behind a lot of vacant and, eventually foreclosed, homes.  Just the speculators alone can leave behind half of the homes on the market, even in relatively non-speculative state such as Idaho.  These foreclosed homes will drive down the prices of other homes belonging to the people that Bush's plan is supposed to "help".

So, this plan, in the big picture, will try to "help" people so they can continue to pay the mortgage on their overpriced assets which are underwater by as much as 100's of thousands of dollars.   Its only chance of success would be based on the assumption that "if they are stupid once, they can be stupid twice."

Now, onto the details (from the WSJ):

"Which mortgages does the plan cover?

The agreement covers only a subset of borrowers. These are borrowers who took out subprime ARMs that were originated between Jan. 1, 2005, and July 31, 2007, and whose interest rates will reset for the first time between Jan. 1, 2008, and July 31, 2010. It applies only to loans that have been packaged into securities and not those that are held by banks on their own books. Homeowners should call their servicer to determine if their mortgage is covered by the plan. It doesn't apply to borrowers with subprime ARMs that have already faced their first rate reset. It also doesn't cover loans that are seriously delinquent, fixed-rate mortgages or ARMs issued to borrowers with good credit."

If that is not confusing enough, let's go back to the very basic question: "What the hell is a subprime mortgage ?"  It's not like your loan docs would have a big red stamp on it saying "subprime", "Alt-A" or "prime".

"How do I know if I have a subprime mortgage?

The agreement doesn't provide a specific definition of subprime ARMs because it isn't always clear. Typically, subprime ARMs carry a fixed interest rate for the first two or three years, then adjust annually. Borrowers who aren't sure whether or not they have a subprime ARM can ask the company that collects their loan payments."

Well, if these people call the bank, then they will likely figure out that subprimes are loans so bad that even the teaser rates start at around 7% and might go as high as 9%.  The median is probably around 7.7%.  So Bush's silver bullet is to help people paying for an overpriced asset at a subprime rate a little longer.

And how do the lenders know if the borrowers can pay for the mortgage at the teaser rate for the next few months, forgetting the next 5 years.   The WSJ does not say much on this:

"Who qualifies for the rate freeze?

To qualify, borrowers must live in their home and face a payment increase of more than 10% when the rate on their ARM resets for the first time. The program is designed to help borrowers who aren't good candidates for refinancing because of a poor credit score, have little or no equity in their homes or a history of late payments. To qualify for the fast-track program, borrowers must have a credit score of less than 660 and it can't have improved by more than 10% since the mortgage was originated."

so only people with bad credit which remains bad and who can do themselves a much better favor by walking away from the homes can qualify for the "help" to stick with it.  There's no need to produce W2 or to prove their ability to pay, apparently.

So, the only one question I have for Bush is: "How are you going to find so many people stupid people and keep them stupid for another 5 years ?".   Even if they are dumb, they surely must know some half-smart people at any street corner who can tell them that since they have no equity in the homes they will lose nothing by walking away from the debt and rent an equivalent house for half as much and keep the spare money to feed their families, not the lenders.

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#9) On December 07, 2007 at 8:12 AM, 231545 (< 20) wrote:

Hey, I'm as disappointed (or angry) with the Bush administration as anyone here.  I get the feeling, however, from reading some of the comments (the semi-concealed disgust) that some of you think that we'll be better off under Hillary or Obama?

 Have you bothered to see what Hillary proposed?  For one, a complete freeze on the adjustable rate that the irresponsible would have to pay on their mortgages.  "Free" money to the people again.

 Under a Hillary or Obama administration, we'll end up adding to everything Bush has done incorrectly during his eight years, plus we'll lose the tax cuts on death and dividends.

 Be careful what you wish for (even if it's not said directly).

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#10) On December 07, 2007 at 8:54 AM, TMFBent (99.81) wrote:

 Be careful what you wish for (even if it's not said directly).

Be careful when you try to put words in other peoples' mouths -- especially when it's said directly. No one here said this would be better with a plan from Obama or Clinton or Schumer. In fact, my article yesterday said just the opposite.

Just because the Democrats (who are running for office and can thus afford to say anything) might do somthing dumber, doesn't mean the Bush administration isn't dumb.

I'm actually glad, now that the details are finally out, that this thing is as limited as it is. However, the blowback from the "promise" that won't be delivered is likely to be huge. I would not be surprised to see this become a much bigger joke that Bush's pitiful job with Katrina aid under his incompetent crony "Brownie." But then, Bush can afford to just tread water for a year or so and push the mess he created onto the next administration. Odds are, it won't be Republican.

plus we'll lose the tax cuts on death

Good, this country doesn't need rules that further promote a ruling class of super-rich aristocrats -- and let's cut the specious, Karl Rove-ism "death" tax. It's a tax only on very large inheritances, and touches only a tiny fraction of the people in this country.

and dividends.

Not so good. This tax cut, at least, incentivizes investing in money-producing enterprises and can be accessible to anyone with the discipline to save.

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#11) On December 07, 2007 at 10:47 AM, 231545 (< 20) wrote:

Seth,

 Actually, when I wrote my post, it was in no way directed at you.  Your article yesterday was so insightful and informative that I emailed you about it requesting how to profit from this mess.

My post was directed to the lighted veiled disgust at Bush in general reflected by a couple of other posters on this blog.  As I said, I am upset with many of his actions too, but in no way do I have any illusions about the opposition.

 But, now you have given me something else to respond to you about - the death tax!

You said it "..touches only a tiny fraction of the people in this country."

Does it really matter how many people it "touches." What matters is: Is the tax inherently fair and just?

If someone chooses to work, pay taxes on the money earned, and save what's left of their money to pass to their descendants instead of spending it, why should the government or any other person or person (s) (i.e. other Americans) have a greater claim to that money than the descendants for whom the earner intended to pass the money to?  Is it morally just to tax that person's money twice - once when it is earned and again when he dies?  What justification is there to do such a thing? 

If someone, like Warren Buffett, is in favor of the death tax, he is welcome to will the US Government any amount of billions he would like.  Personally, I would perfer my family, not the government, to benefit from my work and other efforts to create wealth.

It is not right for one person or group of persons to decide when another person "has enough" or what that person should spend or how that person should be able to will his justly earned money.

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