Bush Touts Mortgage Plan for Housing and Credit Crises

By Matt Phillips, Damian Paletta, and Henry J. Pulizzi from the Wall Street Journal Online

President Bush and Treasury Secretary Henry Paulson began a full-court press to make the administration's case that it has the housing and credit situations well in hand.

Speaking to a Rotary Club meeting in Fredericksburg, Va., Mr. Bush reinforced his opposition to a federal bailout of lenders and real-estate speculators, but said administration initiatives will help still-creditworthy homeowners renegotiate their mortgages and remain in their homes.
"It's going to take a while to work through the housing bubble, but we can mitigate some of the issues," Mr. Bush said. "We've got a strategy."

Mr. Paulson told a town hall meeting on the outskirts of Orlando, Fla., that there was no "silver bullet" to solve the credit-market problems, though he expressed optimism about several programs designed to limit mortgage foreclosures and restore market stability. The meeting was the first of several in towns across the country this week to discuss White House efforts to minimize foreclosures.

"The magic here is investors and servicers coming together to deal with an unprecedented situation so we don't have perverse outcomes and so that we don't have a market failure," Mr. Paulson said. Mr. Paulson used the term "market failure" at least six times and "unprecedented" at least twice in less than two hours.

Mr. Paulson helped broker industry discussions that led to a new format announced two weeks ago to make it easier for many homeowners with subprime adjustable-rate mortgages to move toward more affordable refinanced loans. Many other borrowers could qualify to have their interest rates frozen for up to five years.

With record numbers of subprime adjustable-rate mortgages resetting into more expensive monthly requirements and housing prices falling in many parts of the country, foreclosure rates have risen sharply, putting pressure on the economy.

Mr. Paulson said he supported Citigroup Inc.'s decision last week to move its assets from its structured investment vehicles, or SIVs, onto its balance sheet. SIVs, which issue short-term debt to buy other, higher-yielding assets, have been struggling because of exposure to risky subprime-mortgage debt.

He spoke enthusiastically about supporting a legislative proposal to allow government-sponsored enterprises Fannie Mae and Freddie Mac to securitize more expensive mortgages to spread their liquidity function into a different part of the market, but signaled that the administration would condition its support on broader regulatory reform of the companies.

In Virginia, the president warned lawmakers not to raise taxes while the U.S. economy faces credit-market-related challenges, saying his administration has a good plan to deal with the turmoil in the housing market.

He touted the Federal Housing Administration's mortgage-renegotiation program, known as FHASecure, and the Treasury Department-led private-sector initiative for homeowners about to be stung by resetting mortgage rates.

"I am concerned, I know you're concerned, about the housing industry. We all should be," Mr. Bush said.

Democrats were quick to criticize Mr. Bush's remarks as overly optimistic on the economy and unrealistic on the effectiveness of the White House's housing policies.

"The Bush administration continues to see the economy through rose-colored glasses, whether it be the subprime crisis, the credit crisis, the energy crisis or the declining dollar, it blithely marches along without making any serious effort to solve these economic problems," said Sen. Charles Schumer (D., N.Y.)