- The Washington Times - Friday, September 21, 2007

President Bush acknowledged “some unsettling times” in the country’s troubled housing and credit markets, while Federal Reserve Chairman Ben S. Bernanke offered fresh assurances steps would be taken to curb the fallout.

The housing slump, the worst in 16 years, is likely to drag on well into next year, when the nation will be voting for a new president. Home foreclosures — now at record highs — and delinquencies are likely to get worse, Mr. Bernanke told the House Financial Services Committee yesterday.

Against this backdrop, the Fed and other banking regulators, the Bush administration and Capitol Hill are scrambling to provide relief.

Proposals in Congress would expand federal backing of mortgages. The House on Tuesday passed legislation that would give more leeway to the Depression-era Federal Housing Administration, which insures mortgages for low- and middle-income borrowers. The Senate has its own bill. The administration, meanwhile, is working with the FHA to help squeezed homeowners.

Mr. Bush said at a White House news conference yesterday “there is no question” these are “some unsettling times” in the housing and credit markets. “That’s why I look forward to working with Congress to modernize the FHA loans so that people can refinance their homes.”

Treasury Secretary Henry M. Paulson Jr., who also appeared at the House hearing, signaled that the administration would consider allowing the mortgage giants Fannie Mae and Freddie Mac to temporarily buy, bundle and sell as securities any loans exceeding $417,000, known as “jumbo” loans.

The idea, which represents a policy change for the administration, is portrayed as an important way to pump cash into the jumbo loan market, which has been hard hit by the credit crunch.

Mr. Paulson stressed such a change could occur only in tandem with tighter oversight of Fannie Mae and Freddie Mac. A few years ago, the two mortgage giants suffered multibillion-dollar accounting scandals. Mr. Bernanke also said any leeway given to buy jumbo loans should be provided only on a temporary basis.

The top executives at Freddie Mac and Fannie Mae testified that they stood ready to help cushion the shocks from a rising flood of mortgage foreclosures.

The panel’s chairman, Rep. Barney Frank, Massachusetts Democrat, supports giving more leeway to the FHA as well as to Fannie Mae and Freddie Mac to help ease the credit crunch.

“I think there’s a general agreement that investors, having once been too reckless, are now, to some extent, too cautious, and this isn’t going to go away instantly,” Mr. Frank said.

The biggest fear is the ill effects of the housing slump and credit crunch will throw the economy into recession.

Hoping to prevent that from happening, the Federal Reserve on Tuesday sliced a key interest rate by a bold half-percentage point. It was the first time in more than four years the Fed cut this rate.

Mr. Bush, meanwhile, said he thinks the country will weather the financial storm.

“I’m optimistic about our economy,” he said.

Lax lending standards during the housing boom came to roost after the housing bust. The carnage has been the most severe in the subprime market, where mortgages are held by borrowers with spotty credit or low incomes. Many are at risk of losing their homes.

Analysts estimate that at least 2 million adjustable-rate mortgages will jump from low initial teaser rates to higher rates this year and next. Steep prepayment penalties have made it difficult for some to get out of their mortgages. Some overstretched homeowners can’t afford to refinance or even sell their homes.

The Federal Reserve is conducting a thorough review of potential actions to help consumers and would-be homeowners and prevent problems from happening again in the future.

“We are committed to preventing problems from recurring, while still preserving responsible subprime lending,” Mr. Bernanke said. For all its problems, subprime lending has been an important factor boosting home ownership in the United States.

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