What Bush Won't Say to Help the Market

We face a grave problem, which may already be a crisis. There is a threat to our economy, a threat that is greater than we have seen in many years. Housing prices are falling, partly because qualified buyers cannot get loans. People cannot refinance loans because housing prices are falling. It is a vicious circle. It has made it hard for average people to get new loans to buy homes.

Mistakes were made. But that is in the past. We must look ahead. Someone must act. I am going to quote a great president from the other party: "The buck stops here!"

What should we do? I have a plan with three parts, steps in addition to those my administration has already taken -- helping some homeowners relax loan conditions without undue tax burdens.

First, we need to empower our existing lending institutions -- the FHA, Fannie Mae and Freddie Mac(FRE Quote). I call upon our mortgage oversight agency, OFHEO, to relax the extra capital requirements on Fannie and Freddie, allowing them to expand lending by 30%. They may also need to add additional capital, but this will be a good start.

Next, we need to recognize that so-called "jumbo" loans, those over $417,000, are fairly common in some parts of the country. The inability of qualified borrowers -- people who have demonstrated ability to meet payments -- to get loans in this market has crippled lending for millions of Americans. Both Fed chair Ben Bernanke and Treasury Secretary Paulson have pointed out the need to increase the size of the "jumbo" designation, permitting Fannie and Freddie to help in this market.

I call upon Congress to support my proposal for a temporary relaxation of this requirement. We can revisit the subject when this crisis has passed.

Finally, we need to make sure that our lending institutions have a free market. The market in old mortgages is not free. A climate of fear and uncertainty has crippled our banks. My economic advisers say that it is not a problem of value, but one of liquidity. We need to unfreeze these markets and restore the normal functioning of our economy.

To this end, I have created a bold and decisive plan. My plan, which will be introduced in both houses of Congress next week, provides for a temporary federal program modeled after the Resolution Trust -- something that solved our savings & loan problems in the '90s. The National Security Homeowner Trust will establish the federal government as the buyer of last resort for existing mortgage securities.