Bush Moves Against Home Financing Crisis

(CBS/AP)  When Florida real estate was red-hot, Pam Calciano thought a $400,000 second home was a good investment. Not any more.

"I'm workings weekends. I'm a nurse, I make good money and I feel like it's all going to the house," she told CBS News correspondent Anthony Mason.

With the payments of her adjustable rate mortgage about to adjust hundreds of dollars higher, she's had to put that house on the market.

"If it takes the president to get involved, I agree with that," Calciano said.

President Bush did step in on Friday, offering a plan that would allow families in default because of rising payments to refinance into mortgages insured by the government.

The president outlined ways to help homeowners facing foreclosure; it's the administration's first effort to deal with an expected wave of defaults fueled by the mortgage crisis.

The initiatives, which are not aimed at bailing out lenders or speculators, are designed to help homeowners with risky mortgages keep their houses. In remarks in the Rose Garden, Mr. Bush also discussed efforts to keep the problems from arising in the future.

"The government's got a role to play, but it is limited," Mr. Bush said. "A federal bailout of lenders would only encourage a recurrence of the problem."

The president insisted that the U.S. economy was strong and could weather recent turbulence in the financial markets. He said the mortgage market, especially the subprime sector, has shown particular strain. One of the most troubling developments has been an increase in adjustable-rate mortgages, which start out with low interest rates, then reset to higher rates after a few years.

"This has led some homeowners to take out loans larger than they could afford based on overly optimistic assumptions about the future performance of the housing market," Mr. Bush said. "Others may have been confused by the terms of their loan, or misled by irresponsible lenders. Whatever the reason they chose this kind of mortgage, some borrowers are now unable to make their monthly payments, or facing foreclosure."

The White House says this could help nearly a quarter of a million homeowners. But they must have strong credit histories. It would not include any sub-prime borrowers … borrowers like Calciano:

"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," Mr. Bush said.

Earlier this month, Mr. Bush predicted that the ongoing decline in the housing market wouldn't become precipitous, but would result in a "soft landing."

He rejected any direct government aid to homeowners losing their houses to foreclosures, saying he only supported federal government help that would encourage refinancing and educate prospective home buyers about risky mortgage terms

"Anybody who loses their home is somebody with whom we must show enormous empathy," the president said at an Aug. 9 news conference. "The word `bailout,' I'm not exactly sure what you mean. If you mean direct grants to homeowners, the answer would be no, I don't support that."

On Friday, Mr. Bush:

Urged Congress to pass legislation that would give the Federal Housing Administration more flexibility to help mortgage holders with subprime mortgages;

Pledged to work with Congress to reform the tax code to help troubled borrowers rework their loans; and

Called for rigorously enforcing predatory lending laws and strengthening lending practices.

Federal Reserve Chairman Ben Bernanke also sent a message on Friday, repeating, in a speech, his pledge that the Fed is ready to "act as needed" to ensure the mortgage crisis doesn't infect the entire economy.

But even as Bernanke vowed Fed action, he sought to temper investors' expectations:

"It is not the responsibility of the Federal Reserve nor would it be appropriate to protect lenders and investors from the consequences of their financial decisions," Bernanke said. "But developments in financial markets can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account when determining policy."

"The principal actors have told us, 'We're on the job, we're paying attention, and if anything bad happens we will take care of it,'" Bill Cheney, chief economist at John Hancock, told Mason. "That's good enough."

It was good enough for the markets today - the Dow staged a triple-digit rally.

Peter Dunay of Leeb Capital says Bernanke's next moves will be crucial.

"He does not want to come in and be a brand new Fed chairman that puts us into a very, very bad recession," he told Mason.

That's why the Fed is widely expected to cut its key rate next month. It would be the first cut in four years and would offer some interest rate relief for mortgage buyers, but too late for Calciano, who's learning how much a slumping housing market can hurt. She's reduced the price of her house by more than $100,000.

[likeitis5050]

Why did she have to have second home in the first place, and at adjustable rate at that. Is she stupid?

[realpatriot1]

imprisonbush,

We can''t afford for the President to stay out of it because the free market isn''t self-correcting in these matters. That''s what conservative free market small government types never get.

Everyone hates the government until they get into trouble and need the government to pull their weenies out of the fire.

[radiob-2009]

The "home" at a modest growth of 3% over the same period of time. Assuming the cost of the home is $100,000 is now worth using the rule of 72(divide the rate of return into 72) $225,000 over 30 years. At the end of 30 years you have accumalated $125,000 in equity, reduce by cashing out the IRA your total payments by $135,625 and end up with a total net worth gain of $65,625 that is non taxable if you decide to sale at the end of 30 years. Paying off ones home should be ones foremost decision coupled with savings.

[radiob-2009]

A follow up to my post if the IRA is earning 8% and would continue to earn 8% over 30 years the total investment of $50,000 would become $170,000 now divide this by 15 years (what you are expected to live after retring) and tax this amount $11,333 at 15% and multiple this by 15. $1700 (taxes) times 15 years equal $25,500 in taxes. Now subtract your original investment of $50,000 from the $170,000 and then the taxes $25,500 and the additional "intrest" on the home $135,625 from the $170,000. You are now negative in savings $41,125 from keeping the IRA.I hope this does not confuse anyone.

[forthepeopl1]

its ok for the governemnt to bailout their freinds in large corporations and remember the saveing and loans in the late 80''s.

but screw americans that payed for that mess. and now that these same companys have made billions on americans and have been caught red handed in the cookie jar, they get rewarded to continue their pratice..

a bailout is exactly what should be allowed if this congress and president didn''t put us in this illeigal war/occupation and we didn''t have to pay the interest of 10 billion a month on the money borrow from china,japan and others the fed wouldn''t had to rise the fed rate 5% for us to pay for it..its the government responsablity to fix it and pay for it..plain and simple!!!!

everone should be calling on congress to completely bailout americans..all no exception.

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," Mr. Bush said (AS HE STATED IN HIS OWN WORDS ABOVE. SO WHY DID THE GOVENMENT BAILOUT ALL THESE LARGE CORP,CITI BANK,SAVEING AND LOANS,CRYSLER CORP,AIRPLAIN INDUSTRY,AND SO AND SO ON..BUT BAILOUT AMERICANS THAT HAVE PAYED FOR ALL THESE..NO WAY) I ASK WHY ITS OUR TAX DOLLARS.

[oakishpines]

'' ... when george washington saw the enemy holding hands and weaving bouquets with little boys, she became enraged and chased them all through the gardens spanking their lazy naked ignorant profane ***** ... ''

'' ... it is not a question of will the pharoah and the congress and the nation ultimately fail, it is a question of who will they fail to: wads of girls with bouquets or tiny bundles of men with bombs, and the surest way to ensure the desirable outcome is to be the desirable outcome ... ''

[radiob-2009]

Standlee5

Not knowing your "circumstances" I will give a generalized view. To the majority of Americans a "home" is the largest financial transaction they will ever undertake. IF one has money in a IRA that can help pay off a significant portion of the loan, and retain some "emergency savings" one is better off to pay the 10% penalty and the 15% tax on the IRA to lower their debt than to "retain" the IRA. Example: 100,000 borrowed over 30 years at 6.5% equates to a total of payments equalling $295,000. Withdrawing $50,000 cost with penalties and tax (EXCLUDING normal income)$12,500 in one tax year. The $37,500 applied to the mortgage and refinaced at the same rate saves $135,625 dollars over the life of the loan. This would also lower one payments and should allow one to "Save" money.You will have to run the numbers for yourself and see what kind of rate you are able to obtain, factor in your "earnings" for this year when calculating the total tax on your IRA. I hope this helps. It is generalized and not specific to your needs or others needs.

[imprisonbush]

Bush should just stay out of the mortgage mess. His policies have caused this disaster and everything he touches results in death and destruction. He should go back to playing with his Hot Wheels and let the grownups figure out what to do.

[mcvet]

"BUSH"... "Move''s". Now you want to talk about conflicting terms folks, this is the best example in HISTORY!!

[shanev137]

....and then, what happens if that person doesn''t pay back Bush''s new government mortgage? LOL

Yup, that''s right folks, Joe and Jane Taxpayer get stuck with the bill.

LOL