The Check's Not in the Mail
But Bush moves could save thousands from foreclosure
Any struggling homeowner expecting Uncle Sam to cut him a check was surely disappointed by a new White House proposal to help deal with the burgeoning mortgage crisis. But the initiatives that President Bush announced last week could help at least tens of thousands of homeowners at risk of foreclosure keep their homes. "Owning a home has always been at the center of the American dream," Bush said.
The president said the Federal Housing Administration will offer refinancing options to more homeowners, and he urged Congress to pass a temporary change in tax law so that canceled mortgage debt isn't treated as income. While opposing the idea of direct grants to homeowners, Bush announced a "foreclosure avoidance initiative," which would include financial counseling to help people understand their options.
Help. The FHA estimates that the changes will help an additional 80,000 families avoid foreclosure. But the problem is far bigger than that. According to RealtyTrac, foreclosures were up by 93 percent in July over a year ago. For the first seven months of the year, there have been 1.1 million foreclosure filings nationwide, the research firm said.
"[The FHA changes] will be of help to some at the subprime level who are basically going to pay their loans but just need a little help," says Chris Cagan, director of research and analytics for First American CoreLogic.
In a speech, Federal Reserve Chairman Ben Bernanke said the Fed is also prepared to take measures to address the mortgage crisis "to limit the adverse effects on the broader economy." Wall Street analysts read those remarks as hinting at a Fed interest rate cut later this month.
But Democrats in Congress don't want to count on help from Bernanke and company. They've been calling for greater relief measures for months, including allowing quasi-public mortgage giants Fannie Mae and Freddie Mac to buy "jumbo loans," which exceed $417,000. (The White House and the Federal Reserve have supported keeping those lending limits to prevent further financial problems at Fannie and Freddie.) Some, such as Sen. Hillary Clinton, even want to create a bailout fund. Sen. Charles Schumer, a Democrat from New York and member of the Senate Banking Committee, said that he still wanted to lift the limits on jumbo loans but that Bush's proposals were a good first step: "The president has decided to call a few plays from the Democratic playbook."
This story appears in the September 10, 2007 print edition of U.S. News & World Report.