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President Bush, Bernanke Weigh In on Credit Crisis

President Bush announced a series of measures Friday intended to help ease the credit crunch caused by mortgage defaults, while Federal Reserve Chairman Ben Bernanke said he would monitor the situation.

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    For weeks now, the problems in the mortgage markets have shaken the financial markets, causing new concerns over whether those troubles could spread to the rest of the economy. Much of the turbulence was caused by homeowners who took out so-called subprime loans, which are riskier, and are now unable to pay their mortgage.

    Those loans came with lower, introductory adjustable rates that are now rising or due to rise soon. In some instances, that can double a monthly payment, and economists predict that as many as two million people with subprime mortgages will be paying higher monthly payments within the next two years.

    Today, in dual appearances aimed at different audiences, President Bush and Federal Reserve Chairman Ben Bernanke made it clear they would step in to prevent problems with subprime mortgages from endangering the wider economy.

    The president announced his proposal at the White House this morning. The plan, aimed at helping 80,000 delinquent homeowners who would receive federally insured loans, would take effect next year.

    GEORGE W. BUSH, President of the United States: 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. It's not the government's job to bail out speculators or those who made the decision to buy a home they knew they could never afford. Yet there were many American homeowners who can get through this difficult time with a little flexibility from their lenders or a little help from their government.


    Some of that help would come from changes in the Federal Housing Administration, part of the Department of Housing and Urban Development, which insures loans to low- and middle-income borrowers. The FHA will have more flexibility to back refinanced mortgages for homeowners who have good credit.


    In the coming days, the FHA will launch a new program called FHA Secure. This program will allow American homeowners who have got good credit history, but cannot afford their current payments, to refinance into FHA-insured mortgages. This means that many families who are struggling now will be able to refinance their loans, meet their monthly payments, and keep their homes.


    The president also wants the FHA to raise the dollar amount on loans it will back and called for tax code changes to eliminate penalties for refinancing mortgages. The plan also calls for an increase in transparency in the mortgage industry to help guard against predatory lending.


    We believe, if the consumer is better informed, these kind of problems won't arise or are less likely to arise in the first place.


    An hour before the president unveiled his plan, the Federal Reserve Board chairman, Ben Bernanke, gave a widely anticipated speech at a bank conference in Wyoming. Bernanke said the Central Banking System would watch the subprime crisis and act as needed to limit the impact on the wider economy. He stated, quote, "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. But developments in financial markets can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account when determining policy," end quote.

    Back in Washington, the chair of the Congressional Joint Economic Committee, Senator Charles Schumer, said he hoped to see stronger action from the White House in days to come.

    SEN. CHUCK SCHUMER (D), New York: Just when it looked like millions of homeowners would be left with nothing more than a Hail Mary pass to save their homes, the president has decided to call a few plays from the Democratic playbook. This is a good and promising first step, but, of course, we must do more.