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Politics

Bush offers housing help

The relief targets certain homeowners to avoid foreclosure. Bipartisan support is expected.

By HELEN HUNTLEY, Personal Finance Editor
Published September 1, 2007

President Bush extended a helping hand Friday to thousands of homeowners caught in the financial bind of escalating mortgage rates.

It's a limited offer to people with good credit and steady jobs, but it's a sign that the federal government can no longer ignore the growing tide of foreclosures - nationwide but especially in Florida - that has thrown the financial markets into turmoil and depressed real-estate sales.

"What the president did today is provide the opening shot in what will be an extended debate that ultimately will result in some real money being put to work," said stock analyst Dick Bove of Lutz, who follows financial companies for the brokerage Punk Ziegel.

The most important piece of Bush's plan, which will take effect immediately, is a new program under the Federal Housing Administration that allows families with adjustable rate mortgages to refinance under more favorable terms.

It is limited to homeowners who have a mortgage with an interest rate that either did or will reset between June 2005 and December 2009. The borrowers must have a history of on-time payments before their initial low teaser rate reset, at least 3 percent cash or equity in the home, a sustained history of employment and sufficient income to make the mortgage payment. The limit on an FHA loan for a single-family home in the Tampa Bay area is $222,300.

"It's not the government's job to bail out speculators or those who made the decision to buy a home they knew they could never afford," Bush said in remarks in the Rose Garden. "Yet there are many American homeowners who could get through this difficult time with a little flexibility from their lenders or a little help from their government."

About 240,000 families would qualify for the program, according to the administration's analysis, though some groups estimate as many as 2-million households face potential foreclosure.

Those most vulnerable may benefit little from the administration's offer.

"You're talking about helping people who have relatively good credit and that's not the problem," said Scott Brown, senior economist at Raymond James & Associates in St. Petersburg.

The highest foreclosure rates have been among borrowers with "subprime" credit and investors who bought houses and condos expecting to resell them quickly at a profit.

Investors are a huge part of the problem in Florida, where about a fourth of the investors with good credit are in default. They wouldn't get a bailout from Bush.

However, any program that helps homeowners also helps their lenders who avoid the cost of foreclosure.

"The relief the president is proposing today is very targeted," said Wachovia Bank economist Mark Vitner. "Congress comes back in session next week, and this is an issue that's likely to have wide bipartisan support."

He said Bush is doing the right thing by not offering help to investors.

"In Florida and California, unfortunately the speculators need to be hurt," Vitner said. "That's the only way we're going to restore affordability. If we don't make housing more affordable in Florida, people can't afford to move there."

Some other points of the president's plan will require congressional action. He is lobbying for Congress to expand FHA's role in housing by reducing the 3 percent down payment requirement and raising the insurance limit, which varies depending on the location and the type of property. The FHA insures the mortgage against default, which means a lender can offer the borrower a lower interest rate. Borrowers pay an insurance premium.

Bush also wants Congress to change the tax code to help borrowers who are able to negotiate a reduction in their mortgage debt. Currently, debt forgiveness is treated as taxable income unless the debt is canceled through bankruptcy.

Bush's proposals got a generally favorable reaction, although critics said they did not go far enough. Sen. Charles Schumer, D-NY, called the announcement a major shift for the administration.

"The president has gotten out of his ideological straitjacket and seen that in times of crisis, one of the jobs of government is to help," Schumer said at a news conference.

Analyst Bove, citing political timing, said the president has to deal with the coming foreclosure crisis or risk damage to Republican candidates running for office.

But exactly how much help to provide debt-burdened homeowners is not a simple issue.

"We do not want to take all of the mortgages that are certain to default and just have the government pay them off," said Stuart Feldstein, president of SMR Research Corp., which researches housing issues. "Even if we could afford it, it would just encourage more loony lending going forward."

Information from Times wires was used in this report. Helen Huntley can be reached at hhuntley@sptimes.com or 727 893-8230.

Fast facts

Housing relief plan

Key points in the president's proposal:

-Launch "FHA-Secure" program to refinance loans for people who have good credit but fall behind on payments when mortgage rates adjust.

-Allow FHA to reduce down payment requirements and insure larger loans.

-Change tax code so cancellation of mortgage debt on primary residence would no longer be considered taxable income.

-Work with lenders and nonprofit groups to provide mortgage education and expand refinancing options.

-Support efforts to improve mortgage lending standards and disclosure requirements.

By the numbers

7.5-millionSubprime mortgage borrowers at end of 2006

$1.4-trillionBorrowers' loans at end of 2006

2-million+Americans threatened with possible loss of homes as introductory interest rates on mortgages reset

Source: Center for Responsible Lending, Bloomberg News

[Last modified September 1, 2007, 01:11:50]