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It’s been a busy news day already as President Bush outlined his initial plans to for the government to aid in softening the mortgage and housing disaster. You can read more about it here, here, and here.
From Bush’s speech this morning:
On Friday, Bush said he planned to:
- Urge Congress to pass legislation that would give the Federal Housing Administration more flexibility in assisting mortgage holders with subprime mortgages.
- Pledge to work with Congress to reform the tax code to help troubled borrowers rework their loans.
- Call for rigorously enforcing predatory lending laws and strengthening lending practices.
And Bernanke said that the Fed is ready to “act as needed” as needed to ensure the credit meltdown doesn’t derail the greater economy:
The Fed “continues to monitor the situation and will act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets,” he said at the Kansas City Fed’s annual symposium in Jackson Hole, Wyoming. “Further tightening of credit conditions, if sustained, would increase the risk that the current weakness in housing could be deeper or more prolonged than previously expected.”
…
“The Federal Reserve stands ready to take additional actions as needed to provide liquidity and promote the orderly functioning of markets,” Bernanke said.
Several other bloggers are all over this as well: HP & CR.
We’ve been talking about this in another thread. While the argument of moral hazard is clearly correct, the question remains that if the government is willing to bail out farmers, airlines, S & Ls, automotive firms, and corrupt dictatorships (in the past & surely the future) how do the American people get left off of that list?
The changes above are band aids, but it will remain to be seen what permutations the Congress puts on the bills before they hit the street.
I wonder if there will be special help for those in trouble on their sub-prime loans, but no help for those in trouble on standard mortgages.
That wouldn’t make common sense, but it might make government sense.
Marty - I think the proposed guidance would provide financing to anyone who fell behind on their mortgage as a result of it adjusting; which would cover prime and subprime mortgages. FHA qualifications are not based on credit score, so prime borrowers could take advantage of the program as long as the loan amount met the qualifications of the program.
My question, Morgan, is if you view this as the dreaded “bailout.” I’m not seeing it, but maybe that’s because I think a bailout would be more akin to debt forgiveness than transferring one exotic mortgage into a safer product.
I read the coverage elsewhere and the “burn down the government, they are spending out money” theme doesn’t quite make sense to me.
The future of many in the mortgage business and those that were in it and can’t even help themselves….and neither Bush or Benanke is really going to save anyone(especially those in CA and Fl)..time for weeding out..
http://www.usatoday.com/money/economy/housing/2007-08-30-mortgage-brokers_N.htm
Hi Jonathan - Bailout is going to be the word that is used the most in the press and uttered almost never by politicians. I classify a bailout as any actions to mitigate the pending foreclosure wave through intervention; whether expanding FHA loan limits and underwriting guidelines or other.
By keeping people in homes that they can’t afford we artifically keep home prices at bubble levels; which by definition are unsustainable. By keeping prices high we lock the people who were responsible, rented and didn’t fall for the 100% zero-down financing during the mania. Who deserves assistance? Those that were patient and didn’t jump at cheap money or those that took out loans they couldn’t afford?
I am still hashing out exactly where I come down on it-but that is where my head is right now. Check out my latest post with a link to my rationale supporting a bail out - I’m very confused on the issue.