Housing Regulators Face Congressional Panel
The worst housing slump in 16 years and upheaval in financial markets have cast a shadow on the economy, leading lawmakers to question federal regulators about the path ahead for anxious consumers.
A House panel was expected to examine the potential impact on consumers during a hearing Wednesday, five days after President Bush put forward a plan to help struggling borrowers keep their homes amid rising foreclosures. Regulators who oversee the markets, from the Treasury Department, the Securities and Exchange Commission, and the Federal Deposit Insurance Corp., were scheduled to appear.
An estimated 2 million adjustable-rate mortgages are scheduled to "reset" this year and next, jumping from low "teaser" rates for the first two or three years to much steeper rates that could cost borrowers their homes. The wave of resets could crest during the presidential and congressional election campaigns next year, and the issue already has brought politically tinged debate over possible responses by the government.
Observers say it is likely that the modest proposals Bush outlined last Friday will be expanded in coming weeks by a Democratic-controlled Congress seeking to respond to growing voter anxiety.
"I welcome the administration's recognition that a greater public response is required and I look forward to working with them because I agree with a number of specific things that they propose," said Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee. Changes being proposed by Frank and other Democrats in Congress go further, however.
Defaults have spiked in recent months on high-risk subprime mortgages, loans that were extended to borrowers with weak credit histories. The rising tide of soured loans forced a number of lenders into bankruptcy, while hedge fund and other big investors in securities backed by subprime mortgages took deep financial hits.
The turmoil spilled over into global credit markets in recent weeks as investors faced the prospect of not being repaid. Credit tightened, even for more creditworthy borrowers. Stock markets around the globe gyrated wildly and key market indexes were knocked down. The Federal Reserve and other central banks swooped into the markets, pumping tens of billions of dollars into the financial system to help banks and other institutions get through the credit crunch and continue to make loans.
Bush insisted on Friday that the economy was strong and could weather the market turbulence.
The tighter access to credit, making it harder for consumers and businesses to borrow, has raised anxiety that the economy could be hurt. Jitters over the credit markets are not as pronounced as they were in August but they haven't been completely smoothed, Wall Street analysts said Tuesday as the stock market extended its rebound from the huge summer slump.
In keeping with its promise to aid the markets as needed, the Federal Reserve on Tuesday added a relatively modest $5 billion to the banking system through a repurchase agreement. And further bolstering the argument for an interest-rate cut, Fed directors, in minutes released Tuesday from three discount rate meetings from July 9 to Aug. 6, said a contracting U.S. housing market posed a risk to growth.
Also Tuesday, the Fed and other banking regulators issued special guidelines urging loan service companies to work with borrowers in danger of defaulting on their home mortgages. The guidelines are not mandatory, but the regulators expressed hope that companies that collect payments on mortgages would heed the advice.