President Bush is moving to help keep thousands of American homeowners from defaulting on their home loans in a growing crisis that has affected worldwide financial markets. VOA White House Correspondent Scott Stearns reports, the chairman of the U.S. central bank says he will also act to keep the credit crisis from hurting the economy.
In his first public action to address the worsening mortgage crisis, President Bush wants to reassure investors that the fundamentals of the U.S. economy are still strong.
"The markets are in a period of transition as participants reassess and re-price risk," he said. "This process has been unfolding for some time and it is going to take more time to fully play out. As it does, America's overall economy remains strong enough to weather any turbulence."
There has been particular strain in what is called the sub-prime adjustable rate mortgage sector. Hundreds of thousands of people purchased homes with these kinds of loans, which start out with low monthly payments. However, as the payments have gone up many have been unable to pay.
Under the plan announced by President Bush, the government housing authority would allow about 250,000 families who are now defaulting on their payments to get new loans that would allow them to keep their houses.
The move marks a historic expansion of the role of the Federal Housing Authority, a Depression-era agency that has traditionally served low-income and moderate-income families and first-time buyers, but not delinquent borrowers.
Cautious of any intervention that might appear to disrupt market forces, President Bush says the federal government has a role, but a limited role, in helping homeowners.
"A federal bailout of lenders would only encourage a recurrence of the problem," he added. "It is 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. 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."
The president is urging Congress to give the FHA more flexibility in helping homeowners who hold sub-prime mortgages and is vowing to work with legislators to reform the tax code to help borrowers rework their loans.
Defaults on these loans, coupled with the worst housing slump in 16 years, has led to a widening credit crunch which Federal Reserve Chairman Ben Bernanke says he will not let slow the overall economy.
While he has not specified what the central bank will do to alleviate the credit crisis, many analysts believe the Fed will next month cut its most important interest rate for the first time in four years.