[Public Papers of the Presidents of the United States: George W. Bush (2007, Book II)]
[August 31, 2007]
[Pages 1150-1153]
[From the U.S. Government Publishing Office www.gpo.gov]



Remarks on Homeownership Financing and an Exchange With Reporters
August 31, 2007

    The President. Good morning. Thank you for joining me. Secretary 
Paulson and Secretary Jackson gave me an update on the strong fundamentals of 
our Nation's economy. Economic growth is healthy, and just yesterday we 
learned that our economy grew at a strong rate of 4 percent in the 
second quarter of this year. Wages are rising, unemployment is low, 
exports are up, and steady job creation continues.

[[Page 1151]]

    We also had a good discussion about the situation in America's 
financial markets. The markets are in a period of transition as 
participants reassess and reprice risk. This process has been unfolding 
for some time, and it's going to take more time to fully play out. As it 
does, America's overall economy will remain strong enough to weather any 
turbulence.
    One area that has shown particular strain is the mortgage market, 
especially what's known as the subprime sector of the mortgage market. 
This market has seen tremendous innovation in recent years as new 
lending products make credit available to more people. For the most 
part, this has been a positive development, and the reason why is, 
millions of families have taken out mortgages to buy their homes and 
American homeownership is at a near alltime high.
    Unfortunately, there's also been some excesses in the lending 
industry. One of the most troubling developments has been the increase 
in adjustable rate mortgages that start out with a very low interest 
rate and then reset to a higher rate 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. 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.
    Complicating the situation for borrowers is the nature of today's 
mortgage market. In many cases, the neighborhood banker who issued a 
family's mortgage does not own that mortgage for long. Instead, 
mortgages are sold as securities on the global market. And that makes it 
harder for the lender and borrower to renegotiate.
    The recent disturbances in the subprime mortgage industry are 
modest; they're modest in relation to the size of our economy. But if 
you're a family--if your family is one of those having trouble making 
the monthly payments, this problem doesn't seem modest at all. I 
understand these concerns, and therefore, I've made this a top priority 
to help our homeowners navigate these financial challenges so that many 
families as possible can stay in their homes. That's what we've been 
working on, a plan to help homeowners.
    We've got a role--the Government has got a role to play, but it is 
limited. A Federal bailout of lenders would only encourage a recurrence 
of the problem. 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. 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. So I strongly urge lenders to work 
with homeowners to adjust their mortgages. I believe lenders have a 
responsibility to help these good people to renegotiate so they can stay 
in their home. And today I'm going to outline a variety of steps at the 
Federal level to help American families keep their homes.
    First, we're going to work to modernize and improve the Federal 
Housing Administration; that's known as the FHA. The FHA is a Government 
Agency that provides mortgage insurance to borrowers through a network 
of private sector lenders. Sixteen months ago, I sent Congress an FHA 
modernization bill that would help more homeowners qualify for this 
insurance by lowering downpayment requirements, by increasing loan 
limits, and providing more flexibility in pricing. These reforms would 
allow the FHA to reach families that need help, those with low incomes, 
less-than-perfect credit records, or little savings.
    Last year, the House passed this bill with more than 400 votes. 
Unfortunately, Congress hasn't acted this year. It would be a good task 
for Congress to come and get FHA modernization done so that we can help 
these people refinance their homes,

[[Page 1152]]

so more people can stay in their homes. I look forward to signing a bill 
as quickly as possible.
    In the coming days, the FHA will launch a new program called 
FHASecure. This program will allow American homeowners who have got good 
credit history but cannot afford their current payments to refinance 
into FHA-insured mortgages. This means that many families who are 
struggling now will be able to refinance their loans, meet their monthly 
payments, and keep their homes. In other words, we're going to start 
reaching out and making sure people know that this option is available 
to them so they can stay in their homes.
    Second, I'm going to work with Congress to temporarily reform a key 
housing provision of the Federal Tax Code, which will make it easier for 
homeowners to refinance their mortgages during this time of market 
stress. Under current law, homeowners who are unable to meet their 
mortgage payments can face an unexpected tax bill. For example, let's 
say the value of your house declines by $20,000 and your adjustable rate 
mortgage payments have grown to a level you cannot afford. If the bank 
modifies your mortgage and forgives $20,000 of your loan, the Tax Code 
treats that $20,000 as taxable income. When your home is losing value 
and your family is under financial stress, the last thing you need to do 
is to be hit with higher taxes.
    So I believe we need to change the code to make it easier for people 
to refinance their homes and stay in their homes. And to this end, I've 
called Senator Debbie Stabenow of 
Michigan and told her that she's on to a good idea with the bill that 
she and George Voinovich have submitted 
to the Senate. The House has got Rob Andrews of New Jersey and Ron Lewis of 
Kentucky introducing legislation that is a positive step toward changing 
the Tax Code so people aren't penalized when they refinance their homes. 
With a few changes in the Senate version and the House version, this 
administration can support these bills, and we look forward to working 
with them--the Senators and the Members of the House--to pass 
commonsense legislation to help us address this issue.
    Third, my administration will launch a new foreclosure avoidance 
initiative to help struggling homeowners find a way to refinance. 
Secretary Jackson and Secretary 
Paulson are going to reach out to a 
wide variety of groups that offer foreclosure counseling and refinancing 
for American homeowners. These groups include community organizations 
like NeighborWorks and mortgage lenders and loan servicers and the FHA 
as well as Government-sponsored enterprises like Fannie Mae and Freddie 
Mac. These organizations exist to help people refinance, and we expect 
them to do that.
    See, it's easy for me to stand up here and talk about refinancing--
some people don't even know what I'm talking about. And we can--we need 
to have a focused effort to help people understand the mortgage 
financing options available to them or to identify homeowners before 
they face hardships and help them understand what's possible.
    Finally, the Federal Government is taking a variety of actions to 
make the mortgage industry more transparent, more reliable, and more 
fair so we can reduce the likelihood that these kind of lending problems 
won't happen again. Federal banking regulators are improving disclosure 
requirements to ensure that lenders provide homeowners with complete and 
accurate and understandable information about their mortgages, including 
the possibility that their monthly payments could rise dramatically. In 
other words, we believe that if the consumer is better informed, these 
kind of problems won't arise--are less likely to arise in the first 
place. Banking regulators are also strengthening lending standards to 
help ensure that borrowers are not approved for mortgages larger than 
they can handle.

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    This administration will soon issue regulations that require 
mortgage brokers to fully disclose their fees and closing costs. We're 
pursuing wrongdoing and fraud in the mortgage industry through the 
Department of Housing and Urban Development, the Department of Justice, 
the Federal Trade Commission, and other Agencies. In other words, if 
you've been cheating somebody, we're going to find you and hold you to 
account. And we'll continue to do our part to help improve all aspects 
of the mortgage marketplace that is really important to this economy of 
ours.
    With all the steps I've outlined today, we will deliver help and 
hope to American families who need it. We'll help guard against future 
problems in the housing sector. We'll reaffirm the vital place of 
homeownership in our Nation. When more families own their own homes, 
neighborhoods are more vibrant and communities are stronger and more 
people have a stake in the future of this country.
    Owning a home has always been at the center of the American Dream. 
Together with the United States Congress, I will continue working to 
help make that dream a reality for more of our citizens. Thank you.

Banking Industry

    Q. Sir, what about the hedge funds and banks that are overexposed on 
the subprime market? That's a bigger problem. Have you got a plan?
    The President. Thank you.

Note: The President spoke at 11:05 a.m. in the Rose Garden at the White 
House.