Thursday, December 6, 2007

President Bush December 6 2007 Subprime Policy Speech

Our President presented today the administration's current subprime housing plan. The text of his speech can be found here:

I have reproduced President Bush's speech in full below, albeit with commentary of my own offered in red....

1:23 P.M. EST
THE PRESIDENT: Good afternoon. Before turning to the situation in the housing market, I send my sympathy to the families of those murdered in Omaha, Nebraska, yesterday. I was in Omaha just before the shooting took place, and I know what a difficult day it is for that fine community. The victims and their loved ones are in the prayers of Americans. The federal government stands ready to help in any way we can. And our whole nation grieves with the people of Omaha.

I just had an important discussion on the housing market with Secretary Paulson, heh-heh "Paulie!"... I like to call him "Paulie," Secretary Jackson - heh-heh, "Jackie!" - and members of the mortgage industry.

The housing market is moving through a period of change, where "change" means "substantial price adjustment from ridiculous levels". In recent years, innovative mortgage products have helped millions of Americans who should have remained renters pretend to believe that they could afford their own homes -- and that's been good for bonuses of securitizers on Wall Street, for mortgage brokers, for real estate agents, and others, but not so good for the health of the broader credit-bloated national economy. Unfortunately, some of these products were used responsibly, while the vast, vast majority were used recklessly & irresponsibly. Some lenders who were compensated for volume made loans that borrowers did not understand, especially in the sub-prime sector. Some borrowers took out loans they knew they could not afford by lying to lenders about their own personal finances - lenders, in turn, played along with this fraud. And to compound the problem, many mortgages are packaged into securities and sold to investors called "suckers" or "bagholders" or "Asian Central Bankers" around the world. So when concerns about sub-prime loans in Red States begin to mount -- began to mount, uncertainty spread to the broader financial markets where not only Secretary Paulson's former Wall Street colleagues earn giant golden parachutes, but on whom the GOP relies for campaign contributions.

Secretary Paulson and Secretary Jackson and Chairman Bernanke are monitoring developments in the housing markets where they personally own houses, and working to limit the disruption to those neighborhoods, and secondarily to our overall economy. Data released this morning confirmed the difficulties facing the housing market. Yet one reason for confidence is that the downturn in housing comes against a backdrop of solid fundamentals in other areas -- including low inflation *cough* *cough*, a healthy job market, record-high exports. America's economy has proved itself highly resilient -- and it is strong, and it is flexible, and it is dynamic enough to weather this storm...begging the question, "Then why is the administration seeking to interfere with the operation of market solutions?" I don't have an answer to that, so I will not be taking questions after this brief speech.

For individual homeowners, the problem is more difficult. Many of those feeling financial stress made a reckless gamble on ever-escalating home values and therefore have an adjustable rate mortgage, which typically starts with a lower interest rate and which has often involved interest-only payments, meaning that they never demonstrated any commitment to increasing home equity, and then resets to a higher rate after a few years. Many of those borrowers cannot afford the higher payments, and now are whining about their predicament and insisting that responsible Americans bail them out of the contracts into which they freely entered. If you are familiar with my trackrecord as a businessman *wink*, you'll understand why I am sympathetic to bailouts. And now some are fearing foreclosure -- which is a terrible burden for hardworking families, and a source of concern for entire communities and neighborhoods across our country.

The rise in foreclosures would have negative consequences for 2008 GOP electoral prospects, future Wall Street bonuses and our economy. Lenders and investors would face enormous losses, and government should dictate a "free market" that only produces winners - no losers. So they have an interest in supporting mortgage counseling and working with homeowners to prevent foreclosure until a Democrat administration.

The government has a role to play as well by screwing up the already appalling circumstances further through non-market intervention. We should not bail out lenders, real estate speculators, or those who made the reckless decision to buy a home they knew they could never afford; but you know we're working our way to eventually advocating this. Yet there are some responsible homeowners who could avoid foreclosure with some assistance (although the quick-witted among you will immediately recognize the self-contradiction in my use of "responsible" and "assistance") -- and in August, I announced a series of targeted actions to help them. My administration has moved forward in three key areas. I will outline those three now, but understand that they represent the policy beachhead for many more future "key areas" for "targeting" in 2008... this is just an opening salvo on market intervention efforts.

First, we've launched a new initiative at the Federal Housing Administration called "FHA Secure." This program gives the FHA greater flexibility to offset refinancing to homeowners -- to offer refinancing to homeowners who have good credit histories but cannot afford their current payments. In just three months, the FHA has helped more than 35,000 people refinance. And in the coming year, the FHA expects this program to help more than 300,000 families, hopefully exclusively in Red states.

Second, in August, I asked Secretaries Paulson and Jackson to work with lenders and loan servicers and mortgage counselors and investors and lions and tigers and bears on an initiative to help struggling homeowners find a way to refinance into permanent indebted servitude. They assembled a private sector group called "HOPE NOW PAY LATER Alliance" -- their leaders are with us today. HOPE NOW PAY LATER is an example of government interference bringing together members of the private sector to "voluntarily" (or else, *wink*) address a national challenge -- without taxpayer subsidies or without government mandates. I'm pleased to announce that our efforts have yielded a promising new source of relief for American homeowners, but no new source of credit, now that the market for mortgage-backed securities is utterly dead.

Representatives of HOPE NOW PAY LATER just briefed me on their plan to help bailout deadbeat homeowners who will not be able to make the higher payments on their sub-prime loan once the interest rates goes up -- but who can at least afford the current, starter rate. Granted, I just made hash of the very concept of "homeowner," since in the absence of our meddling, that home "owner" would be dispossessed of the asset and returned to the roll of renters where he rightfully belonged. But focus-testing shows that "homeowner" has powerful salience, so I will use it at every juncture. HOPE NOW members have agreed in the presence of Paulson's goons on a set of further reductions to industry-wide standards which is the original source of today's problems to provide relief to these deadbeat borrowers in one of three ways: by refinancing an existing loan into a new private mortgage, by moving them into an FHA Secure loan, or by freezing their current interest rate for five years.

Lenders are already refinancing and modifying mortgages on a case-by-case basis. My advisors assure me that I was taught about market mechanisms back in college, but I can't remember the details. With this systematic approach, HOPE NOW PAY NEVER, I mean, LATER will be able to help large groups of homeowners all at once. This will bring more relief to more homeowners more quickly. "More" tests well in focus groups, too. HOPE NOW VOTE FOR US estimates there are up to 1.2 million American homeowners who could be eligible for this assistance.

Public awareness among deadbeats & fraudsters, but not so much among responsible young renters with downpayment cash who we are truly screwing is critical to this effort, because the group can only help homeowners who ask for it. So HOPE NOW recently mailed hundreds of thousands of impulsively-discarded junkmail letters to borrowers falling behind on their payments, and they have set up a counseling hotline that Americans can call 24 hours a day. I've directed Secretaries Paulson and Jackson to expand the public awareness campaign. And I have a message for every homeowner worried about rising mortgage payments: The best you can do for your family is to call 1-800-995-HOPE.* That is 1-800-995-H-O-P-E.* Call now, and I'll throw in this lovely toaster!

Third, the federal government is taking several regulatory actions to make the mortgage industry more transparent, reliable and fair now that the horse is four counties removed from the barn doors that I only now have shut. Later this month, the Federal Reserve will cut interest rates in a desperate effort to prop our debt-bloated economy, and also intends to announce stronger lending standards that will help protect borrowers who found it just too darned troubling to tell lenders the truth, or to read a loan document before putting their signature to it. At the same time, HUD and the federal banking regulators are taking steps to improve disclosure requirements -- so that homeowners can be confident they are receiving complete, accurate and understandable information about their mortgages.

As we take these preliminary steps, the Department of Justice will continue to pursue wrongdoing among individual homeborrowers who may have misrepresented their financial situation, but less so our rich friends in the banking and housing industries -- so we can help pretend to ensure that those who defraud American consumers could conceivably face justice.

These measures will help many struggling homeowners -- and the United States Congress has the potential to help share the electoral wrath in 2008 even more if I can help it. Yet in the three months since I made my proposals, the Democrat-controlled Congress has not sent me a single bill to help homeowners, which makes them a temporary friend of all free market-loving Americans. If members are serious about responding to the challenges in the housing market, they could do nothing and allow the market to sort things out as quickly as possible; but since that ain't gonna happen, they can start with the following steps that echo the price-freeze idiocy of the Nixon era.

First, Congress needs to pass legislation to modernize the FHA. In April 2006, I sent Congress an FHA modernization bill. This bill would increase access to FHA-insured loans by lowering down payment requirements, allowing the FHA to insure bigger mortgages in high-cost states, and expanding FHA's authority to price insurance fairly, with risk-based premiums. Now, if these sorts of policies seem to you to be of the sort that created the problem in the first place, then you're very likely a renter. This bill could allow the FHA to reach an additional 250,000 families who could not otherwise qualify for prime-rate financing, and who should otherwise remain renters, but who for some freakish reason, practically every public official is trying to crowbar into a home mortgage. Last year, the House passed the bill with more than 400 votes -- and this year, the House passed it again. Yet the Senate has not acted, since 97% of their members are running for President. The liquidity and stability that FHA provides the market of current homemortgagers are needed more than ever with an election year imminent -- and I urge the United States Senate to move as quickly as possible on this important piece of legislation.

Second, Congress needs to temporarily reform the tax code to help deadbeat homeowners who should have remained, and who should otherwise return to being, renters refinance during this time of housing market stress, where "stress" means, "return to pricing sanity". Under or behind or buried within the monstrously complicated current tax law that keeps legions of tax accountants fully-employed, if the value of your house declines and your bank forgives a portion of your mortgage, the tax code treats the amount forgiven as taxable income, since you didn't have to come to closing with that cash, but instead, the bank did. When you're worried about making your payments, higher taxes are the last thing you need. The House agrees, and recently passed this relief with bipartisan support. Yet the Senate has not responded. This simple reform could help many American homeowners in an hour of need -- and the Senate should pass it as soon as possible. All the foregone tax revenue will be covered by further issuance of public debt that we will stick to next generation.

Changing the tax code can also help state and local government do their part to help homeowners and bear the electoral consequences for the mess. Under current law, cities and states can issue tax-exempt bonds to finance new mortgages for first-time home buyers. My administration has proposed allowing cities and states to issue these tax-exempt mortgage bonds for an additional purpose: to refinance existing loans. That way, we can produce ever more debt to make good on previous debt until the mountain of debt is high enough for us all to scramble up to the pearly gates of Heaven. This temporary, although if adopted, likely to become permanent subsidizing measure would make it easier for state housing authorities to help troubled borrowers who should otherwise be renting -- and Congress should approve it quickly, so that we can distract political heat away from the White House for a while.

Third, Congress needs to pass funding to support mortgage counseling, 'cause, as a politician, I know that talk is cheap. Non-profit groups like NeighborWorks provides essential service by helping homeowners find affordable mortgage solutions and prevent foreclosures. My budget requests nearly $120 million for NeighborWorks and another $50 million for HUD's mortgage counseling programs. And while I've not inquired recently, I'm sure HUD's become the model for efficient use of tax payer spending, err, I mean government borrowing from future generations. Heckuva job, Jackie! Congress has had these requests since February, yet it has not sent me a bill -- and they need to get the funding to my desk, because of that irritating document, the Constitution.

Fourth, and mercifuly lastly, Congress needs to invent an aeronautical pig and thereafter, to pass legislation to reform Government Sponsored Enterprises like Freddie Mac and Fannie Mae. These institutions admittedly are as bankrupt as they are corrupt to their very core - just ask that guy Raines, but provide excessive liquidity in the mortgage market that benefits millions of homeowners, and it is vital they operate safely and operate soundly, although if ya think they do *wink*, then there's a bridge in Crawford I'd like to sell ya. So I've called on Congress to pass legislation that propels pigs through space and that strengthens independent regulation of the GSEs -- and ensures they focus on their important housing mission. The GSE reform bill passed by the House earlier this year is a good start. But the Senate has not acted. And the United States Senate needs to pass this legislation soon. Yes, I am repeating myself.

The holidays are fast approaching and, unfortunately, this will be a time of anxiety for Americans worried about their mortgages and their homes, which is why I am short the consumer retail sector. There's no perfect solution, but I've made things worse by assuming that the market can't correct that and instead that the homeowners deserve our help. And the steps I've outlined today are a sensible response to a serious 2008 electoral challenge. I call on Congress to move forward quickly, and join me in delivering relief to homeowners in need at the expense of responsibile Americans who did not get caught up in the idiocy, and into whose hands the real estate assets might otherwise efficiently pass -- so we can keep our economy healthy and the American Dream alive.

God bless.
END 1:35 P.M. EST
* 1-888-995-HOPE

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