US President
George W Bush and Federal Reserve head Ben Bernanke today unveiled separate plans
to help home mortgage borrowers meet their payment obligations amid the current
sub-prime loan crisis. The
crisis in the US sub-prime mortgage sector has been caused by US mortgage rates
rising sharply over the past year leading to a growing number of sub-prime borrowers
being unable to meet their monthly repayments as their initial low rates were
raised, leading to record defaults, which has affected a large number of home
loan mortgage providers. As
a result banks and investment firms heavily exposed to the sub-prime market have
face significant financial difficulty, which was reflected by the recent global
stock markets turmoil. The
president noted that the losses were caused by defaults on sub-prime mortgages,
higher risk loans offered to people with poor credit ratings or on low incomes,
even as he added, "Recent disturbances in the sub-prime mortgage industry
are modest in relation to the size of our economy. But if your family''s one of
those having trouble making the monthly payments, this problem doesn''t seem modest
at all." The
initiatives, however, are not aimed at bailing out lenders or speculators, but
designed to help homeowners with risky mortgages keep their houses. "The
government''s got a role to play, but it is limited," Bush said. "A federal
bailout of lenders would only encourage a recurrence of the problem." A
key element of Bush''s plan would allow homeowners with good credit histories,
but who cannot afford their mortgage payments, to refinance into mortgages insured
by the Federal Housing Administration to keep from defaulting. Meanwhile
Bernanke hinted that rates might be cut as the Fed seeks to promote general financial
stability as losses had exceeded the most pessimistic of projections. The US Federal
reserve will meet to decide rates on 18 September amid mounting expectations that
it would cut the cost of borrowing to ease the current liquidity problems in the
financial markets. Bernanke
said it was not the job of the Fed "to protect lenders or investors from
the consequences of their financial decisions". He, however, added, "The
Fed stands ready to take additional actions as needed to provide liquidity and
promote the orderly functioning of the markets." He
said that the Fed had so far released billions of dollars of emergency funds into
the financial system in an attempt to ease fears over the lack of available credit.
It has also cut the interest rate at which it lends to banks.
also see : General
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