KEY POINTS:
WASHINGTON - US President George W. Bush tried to calm financial market turmoil from the credit crisis today by announcing proposals intended to prevent homeowners from defaulting on risky mortgages.
Rising US defaults on so-called subprime mortgages to less credit-worthy borrowers have caused volatility in financial markets around
the world and raised concerns that the US economy could fall into recession.
In trying to soothe those worries, Bush said the US economy was healthy enough to weather the credit crisis and that the subprime market problems represented only a small part of the economy.
"The recent disturbances in the subprime mortgage industry are modest, they're modest in relation to the size of our economy," he said.
But he emphasized that it was not the federal government's job to bail out the mortgage lending industry, a comment that caused US stock prices to pare gains.
"The government's got a role to play. But it is limited. A federal bailout of lenders would only encourage a recurrence of the problem," Bush said.
Treasury Secretary Henry Paulson, who stood silently behind Bush at the Rose Garden ceremony, later told National Public Radio the administration would try to help people facing foreclosure find ways to refinance.
"We can't keep everyone in their home," Paulson said. "But we sure as heck can make a big effort to help those who have got the capability to own a home refinance."
Democratic lawmakers took issue with Bush's stand-back approach and urged more direct action to protect homeowners who may not realize the pitfalls they face as their adjustable-rate mortgages reset with higher rates that push monthly payments up.
Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, offered support for a proposal to let the Federal Housing Administration refinance more distressed homeowners but said Bush had "sat on his hands" too long before acting.
Any long-term economic fallout from the credit crisis could have an impact on the 2008 elections.
Senator Barack Obama, an Illinois Democrat running for president, criticized Bush for not doing enough.
"For six years, the president and Congress have allowed lending industry lobbyists to block sensible regulations that could have prevented this crisis in the first place," he said. "These are welcome steps, but the president's proposal does not go far enough."
Senator Charles Schumer, a New York Democrat, reiterated that investment limits on mortgage lending giants Fannie Mae and Freddie Mac should be raised so they can buy more mortgages, a position the Bush administration opposes.
At a central bankers' symposium in Jackson Hole, Wyoming, Federal Reserve Chairman Ben Bernanke made clear that he was following what analysts have described as a "tough love" policy toward borrowers and especially toward lenders.
"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," he said.
Bush urged lenders to work with homeowners to renegotiate their mortgages to prevent default.
He called on Congress to approve legislation he proposed last year to modernize the Federal Housing Administration (FHA), which provides mortgage insurance to borrowers through a network of private-sector lenders.
The administration proposal would lower the required down payment for FHA loans and raise the limit on mortgages that would be eligible.
The FHA will soon launch a new program called "FHA Secure" to allow homeowners with good credit history, but who cannot afford their current payments, to refinance into FHA-insured mortgages, Bush said.
He also pledged to work with the Democratic-controlled Congress to temporarily reform a key housing provision of the federal tax code to make it easier for homeowners to refinance their mortgages.
Democrats have accused the administration of being insensitive to the plight of a rising tide of poorer Americans facing the threat of foreclosure.
Financial analysts said Bush's proposals were unlikely to have an immediate impact on homeowners who may be in danger of defaulting on their mortgages.
"I don't think he's outlining a rescue plan. This is more messaging. It's more pomp," Richard Steinberg, president of Steinberg Global Asset Management in Boca Raton, Florida, said.
Bernanke said the US central bank, which has a uniquely independent position within the government, would do whatever was necessary to prevent the broader economy from being damaged but was not about to shield investors who face financial losses.
- REUTERS