The Bush Administration Steps Into the Sub-Prime Mortgage Mess

According to an article in at Yahoo the Bush Administration is going to ask the FHA and the IRS to help sub-prime borrowers that are close to default. This is the first action the Bush Administration has taken toward the sub-prime market.

President George W. Bush will propose reforms on Friday intended to help homeowners with subprime mortgages avoid default, his first public step to address a crisis that has created turmoil in financial markets around the world.

Bush, in a statement scheduled for 11:10 a.m. EDT in the White House Rose Garden, will discuss the need for Congress to pass Federal Housing Administration reform legislation aimed at giving the agency the flexibility to help subprime mortgage borrowers, two administration officials told Reuters.

One move will be an administrative change to allow the Federal Housing Administration to guarantee loans for borrowers at least 90 days behind in mortgage payments to help them avoid foreclosure, the Wall Street Journal reported from a briefing given to a few newspapers.

The Federal Housing Administration was founded in the 1930s Depression years after the U.S. banking system failed and millions of Americans were made homeless. Now its mission is to foster home ownership by insuring mortgage loans, especially for poorer Americans who face difficulty meeting terms for conventional loans.

Bush will urge the Democratic-led Congress to work with him in a bipartisan way to reform the tax code to help troubled borrowers revise their loans, administration officials said.

Specifically, at the present if someone loses their house in foreclosure and the debt is forgiven, the debt must be recognized as ordinary income. The Bush Administration would like this waived temporarily.