President George W. Bush on Friday tried to calm financial market turmoil from the credit crisis by announcing proposals intended to prevent homeowners from defaulting on risky mortgages.
Rising U.S. 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 U.S. economy could fall into recession.
In trying to soothe those worries, Bush said 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.
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 U.S. 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 in a statement in the Rose Garden.
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, Bernanke 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, which provides mortgage insurance to borrowers through a network of private sector lenders.
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.
This means that many families who are struggling now will be able to refinance their loans, meet their monthly payments and keep their homes, he said.
Bush 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 the being insensitive toward 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 U.S. central bank, which has a uniquely independent position within 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.
The (Fed) continues to monitor the situation and will act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets, Bernanke told an elite group of bankers and financiers gathered at a mountain retreat for the weekend.
The Bush administration has resisted proposals to raise the limits on the amount of mortgages housing finance giants Fannie Mae and Freddie Mac can hold in their portfolios.
(Additional reporting by Glenn Somerville, Caren Bohan, Andy Sullivan)