Bush on Home Loan Defaults

Today President Bush proposed some very modest rule changes to help some home owners who are facing defaults on variable rate mortgages.  The primary proposal is to allow home owners in default to apply for fixed-interest FHA insured mortgages to refinance their debt. At present those in default are disqualified from the FHA insurance.  The proposal does not help those in the sub prime market and it does not increase the ceilings on mortgages (either in total amount or in individual amount) that can be held by Fannie Mae and Freddie Mac.  President Bush is attempting to walk a line between doing nothing (and therefore being accused of showing no sympathy) and offering a bailout to those who took a risk on housing prices and guessed wrong.  Predictably he is getting blasted by both sides.  The talk shows and conservative blogs are replete with those upset with the "bailout" and many Democrats (including, most notably, Dodd and Obama) are saying it is late and too little.  As is our tradition, there is going to be much finger pointing -- at the "flippers" (an estimated 30% of some hot markets) that bought homes, the originators that convinced people to use exotic loans, the poolers and rating agencies that packaged the loans and sold securities (CDOs backed by the loans) with glossy ratings, and the investors (hedge funds) that took the riskiest securities (the equity tranche) in the pools, and, finally, with the banks had loaned the hedge funds the money on the securities.  All the speculators (whose personal appeals for aid would be met with public derision) will use, as Jim Kramer has done, the "honest" home owner who was "duped" by "predatory" lenders (and there were some) as a front for aid that will help their positions as well.  It will be hard to carve out those that deserve aid from those who do not with any remedial proposals.