U.S. President George Bush waded Friday into the mortgage crisis that has gripped the U.S., by outlining how his government plans to help troubled borrowers keep their homes.
Foreclosures have spiked in recent weeks, especially for so-called sub-prime borrowers, who have poor credit histories or low incomes.
Higher interest rates have made it impossible for some homeowners to pay or to keep up with their monthly mortgage payments and some can't even afford to refinance.
And the problem is only expected to worsen. Some 2 million adjustable rate mortgages are to reset to higher rates this year and next.
Bush blamed the crisis on "overly optimistic" and ill-informed homebuyers as well as "irresponsible lenders."
He promised that the Federal Housing Administration, which provides mortgage insurance to borrowers through lenders in the private sector, would soon launch a program called FHA Secure. The program would let homeowners who have good credit histories but can't afford their current mortgage payments to refinance into mortgages insured by the FHA.
"This means that many families who are struggling now will be able to refinance their loans, meet their monthly payments and keep their homes," Bush told reporters in the Rose Garden.
Bush also pledged to work with Congress to reform a key housing provision of the federal tax code to make it easier for homeowners to refinance.
But Bush stressed the moves are not a bailout, which he said, 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," Bush said.
"Yet there are many American homeowners who could get through this difficult time with a little flexibility from their lenders or a little help from their government."
Also Friday, U.S. Fed chairman Ben Bernanke pledged the U.S. central bank will "act as needed'' to keep the mortgage crisis from hurting the overall U.S. economy.
But he too cautioned investors that "it is not the responsibility of the Fed to protect lenders and investors from the consequences of their financial decisions.''
The subprime loan disaster has led to the worst housing slump in 16 years in the U.S. and a widening credit crisis that has sent financial markets on a tailspin.
Bush insisted Friday that the U.S. economy was healthy enough to weather the credit crisis and that the subprime market problems represented only a "modest" part of the economy.
Though the measures Bush outlined Friday were modest, investors cheered the news, sending markets in New York and Toronto up sharply. On Wall Street, the Dow Jones industrial average advanced 119.01 points to 13,357.74 and Toronto's S&P/TSX composite index jumped 215.85 points to 13,660.48.
Canada's own real estate has mostly escaped the crisis south of the border, since lending practices differ vastly. Oddly enough, America's pain could be Canada's gain.
The Bank of Canada was widely expected to raise interest rates next month to cool off a red-hot Canadian economy. But, until the crisis to the south eases, most believe the bank will hold the line on rate increases -- good news for anyone borrowing money here.
