Housing bill will 'bail out lenders' - Bush
President reiterates his objection to a proposed change to help homeowners in bankruptcy and the creation of a $4 billion fund to let agencies buy foreclosed homes.
NEW YORK (CNNMoney.com) -- President Bush said Thursday that he opposed the foreclosure prevention legislation that Senate Democrats have introduced.
"The Senate is considering legislation that would do more to bail out lenders and speculators than to help homeowners keep their homes," he said. "The Senate bill would actually prolong the time it takes for the housing market to adjust and recover, and it would lead to higher interest rates."
Earlier this week, the Bush administration said the president would veto the Foreclosure Prevention Act of 2008 if it passes Congress because it objected to two key elements. The first is a provision that would change the bankruptcy law to let judges reduce the amount of principal and interest due on mortgages of those filing for bankruptcy.
The lending industry has been lobbying heavily against the provision, arguing that letting judges rewrite the terms of mortgages would cause lenders to impose a bankruptcy risk premium, raising rates on all mortgage borrowers.
Some studies, however, contend the increase in rates would be minimal.
The administration also objects to a provision in the bill that would provide $4 billion to let state and local government buy and rehabilitate foreclosed homes, and improve disclosure of subprime mortgage loans in hopes that borrowers won't be surprised by big payment increases.
Senate Democrats still plan to put the bill to a vote.
In a letter to Bush on Wednesday, Senate Majority Leader Harry Reid, D-Nev., said the bankruptcy provision in the Senate bill had been modified and now would only apply to existing subprime and adjustable-rate mortgages and let lenders recoup some of the principal forfeited in bankruptcy should the borrower later sell his home.
"The Foreclosure Prevention Act contains necessary, targeted and appropriate solutions," Reid wrote.
He said it would benefit 700,000 families, put 80,000 vacant and foreclosed homes to productive use and create 30,000 jobs and $10 billion in economic activity.
Bush: Give stimulus time to work
The president on Thursday said he believed the economy is not in recession.
"I don't think we're headed to a recession, but no question we're in a slowdown. And that's why we acted, and acted strongly, with over $150 billion worth of pro-growth economic incentives," he said.
He also said that Congress, which is considering additional economic stimulus measures beyond the tax rebates and business breaks included in a package he signed into law, should give the original measures a chance to take effect.
"Why don't we let stimulus package one have a chance to kick in?" he said. He noted that tax rebate checks to more than 130 million tax filers will be mailed out starting the second week of May.
The economic stimulus measure also included a measure that increased the caps on the size of mortgages Fannie Mae (FNM) and Freddie Mac (FRE, Fortune 500) can buy. The aim of that provision was to stimulate more activity in so-called jumbo housing markets, where high prices means home buyers have to take out loans that exceed the "conforming loan limits" on mortgages that the two agencies may buy and sell in the secondary market.
On Thursday, Bush reiterated his call that Congress also pass legislation reforming how Fannie and Freddie are regulated.
In addition, Bush used the press conference to make the case for the permanent renewal of tax cuts he engineered in his first term.
"Keep the tax cuts permanent," he said in response to a question about what hope he could offer to Americans hurting financially and facing the prospect of $4 a gallon for gasoline.
Deficit hawks warn, however, that the longer-term costs of keeping the tax cuts permanent would make the nation's fiscal situation precarious.