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Hill Hearing Focuses on Foreclosure Crisis

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Hill Hearing Focuses on Foreclosure Crisis


Hill Hearing Focuses on Foreclosure Crisis

Hill Hearing Focuses on Foreclosure Crisis

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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What can the federal government do to offset a rash of foreclosures on home loans? The House Financial Services Committee hears the views of the treasury secretary and the Federal Reserve chief on options legislative and regulatory.


From NPR News, this ALL THINGS CONSIDERED. I'm Melissa Block.


And I'm Robert Siegel.

Today, President Bush said the fundamentals of the U.S. economy are strong, but he acknowledged some unsettling times in the housing market. He was referring to the real estate downturn and the fiasco in subprime lending. Foreclosure rates are now at their highest level since the Great Depression.

Today, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson told Congress that the government will not stand by and let the subprime crisis escalate.

NPR's Chris Arnold reports.

CHRIS ARNOLD: The Fed chairman was on the Hill today on the heels of a surprisingly large cut in interest rates. That move was in response to worsening problems with housing and the subprime loan crisis, which has been spilling over more to tangle up financial markets and hurt the economy.

Chairman Bernanke.

BEN BERNANKE: The financial market turmoil has effectively tightened credit conditions that has the risk of making the housing correction more severe and may have other effects on the economy. So we took that action to try to get out ahead of the situation and try to forestall potential effects of tighter credit conditions on the broader economy.

ARNOLD: At the heart of the trouble are millions of unorthodox loans that are adjusting much higher. Bernanke said 15 percent of subprime loans were seriously delinquent as of July.

BERNANKE: Higher delinquencies have begun to show through to foreclosures. About 320,000 foreclosures were initiated in each of the first two quarters of this year. Delinquencies and foreclosures are likely to rise further.

ARNOLD: A growing number of economists estimate a total of more than two million people could lose their homes over a longer period of time. For his part, Treasury secretary Henry Paulson used the opportunity to try to give some advice to struggling homeowners around the country.

HENRY PAULSON: Fifty percent of foreclosures occur without borrowers ever talking to their lender.

ARNOLD: Paulson says that homeowners often don't call their lender or don't return calls because they assume the lender wants to take their house. But lenders say in most situations, they lose money upwards of $50,000 when they foreclose. Paulson said lenders want to avoid that.

PAULSON: And so the most crucial message we can send is to the borrowers who are missing or concerned that they will miss their mortgage payments. Call your lender or a mortgage counselor today. The earlier borrowers reach out the greater the possibility that they will be able to modify their mortgage into one that allows them to stay in their home.

ARNOLD: For homeowners who could afford a reasonable interest rate, there are basically two ways out of the woods here: either their lender agrees to a lower rate or the homeowner refinances out of a loan into one that's more affordable. One idea to help with that has been to loosen restrictions on the government- backed mortgage companies Freddie Mac and Fannie Mae.

Richard Syron is chairman of Freddie Mac.

RICHARD SYRON: Freddie Mac can't solve the whole problem, but we can be and should be a part of the comprehensive solution.

ARNOLD: The federal Department of Housing and Urban Development will also play a role by helping to secure refinancing for borrowers. But HUD secretary Alphonso Jackson told lawmakers his agency would not be offering a bailout to people who speculated or just bought more house than they could afford.

ALPHONSO JACKSON: So we are very serious. We're not going to make the same mistake that some of the subprime lenders made in the sense that they didn't really look at the credit worthiness of the person. We're not going to do that.

ARNOLD: Housing advocates are also pushing for a change in the bankruptcy code that would require a judge to get involved before a lender can take a house if a borrower files bankruptcy.

Chris Arnold, NPR News.

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Treasury, Fed Try to Settle Shaky Economy

Bernanke Transcript

U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke testified before Congress Thursday about their actions to circumvent a recession and halt the recent tide of mortgage foreclosures.

Their recent moves have included urging banks to renegotiate mortgages with homeowners deceived by adjustable rate mortgages, as well as slashing key interest rates that make it cheaper for banks to borrow money — and encourage lending to consumers.

The pair discussed the origins of the problems in the subprime-mortgage market with the House Financial Services Committee and offered possible legislative options to address the issue.

'My Feelings are Not Hurt'

President Bush, in a White House news conference, acknowledged "there is no question that there are some unsettling times in the housing market."

"The fundamentals of the nation's economy are strong. Inflation is down, job markets are steady, corporate profits appear to be strong and so are exports," he said, adding that he is "optimistic" about the U.S. economy. "But I would be pessimistic if Congress does what it wants to do and raises taxes."

Asked about recent comments by former Federal Reserve Chairman Alan Greenspan suggesting that the administration had been fiscally irresponsible, Mr. Bush said "my feelings are not hurt."

"I respectfully disagree with Alan Greenspan when he says we didn't handle the fiscal situation well, because we did," he said.

Rep. Barney Frank, the Massachusetts Democrat who chairs the committee, blames the Bush administration for restricting loan amounts that Fannie Mae and Freddie Mac can bundle into securities to $417,000. The government-chartered mortgage companies are the largest sources of money for American home loans.

However, Treasury Secretary Paulson signaled that the administration would consider allowing 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 a way to inject liquidity into the overstretched mortgage market.

Foreclosures are at record highs and late payments are spiking. Lenders have been forced out of business and investors have taken huge financial hits.

Frank also accused the Fed of not being vigilant during the housing boom of the past few years.

Fed Moving to Aid Economy

But Bernanke offered fresh assurances that regulators would take steps to curb economic fallout related to the mortgage mess.

His comments come just two days after the Federal Reserve cut the key federal funds rate — charged on overnight loans between banks — by a half-percentage point to 4.75 percent in hopes of assisting the ailing the housing market and buoying the overall economy. It was the first time in more than four years the Fed cut this rate.

"Global financial losses have far exceeded even the most pessimistic estimates of the credit losses on these loans," the Fed chairman said. The situation, he acknowledged, "has created significant market stress."

Bernanke promised lawmakers that the Fed will take steps to crack down on abusive or bad lending practices.

"The Federal Reserve takes responsible lending and consumer protection very seriously. Along with other federal and state agencies, we are responding to the subprime problems on a number of fronts," he said. "We are committed to preventing problems from recurring, while still preserving responsible subprime lending."

The Fed has taken a number of steps already and other proposals are being considered, Bernanke said.

Many consumers tend to dismiss the laborious disclosure statement in their mortgage agreement, mainly because they aren't written in terms that are easily understandable.

Paulson said that that information should be greatly simplified, especially on loans that adjust after the initial teaser rate, so that the information is clearer and more meaningful for consumers.

"Consumers have pages and pages of things to look so they think of (the disclosure statement) as boilerplate or the fine print," said Paulson. "The idea that I like is to have on every mortgage a one-page, very simple, big-print statement: 'Your mortgage is X dollars today and it can be Y dollars'" when it adjusts at another date.

With additional reporting from The Associated Press