WASHINGTON (Reuters) - U.S. President George W. Bush said on Tuesday the country’s economic fundamentals were strong despite “headwinds” from a weaker housing market, and he voiced confidence in a plan to ease the subprime mortgage crisis.
“The basics in the economy are good,” Bush told a news conference, citing low inflation, low interest rates, a solid labor market and rising exports as grounds for optimism, although he acknowledged there were also challenges.
“I recognize there are serious issues -- the credit crunch and the home-building industry,” he said.
The U.S. economy grew nearly 5 percent on an annual basis in the third quarter, but it now appears to be slowing sharply as the downturn in the housing market deepens and many analysts are warning of a growing risk of recession.
With home prices falling and the cost of repaying home loans rising, hundreds of thousands of home-owners are finding it harder to refinance into cheaper mortgages and hang onto their homes.
“I am concerned about people who may not be able to stay in their homes,” Bush said. “That is why we are taking the action we’re taking.”
The economy is a potent political theme and Democratic Party lawmakers on Tuesday urged the Bush administration to help as many cash-strapped homeowners as possible.
Interest rates on two million subprime mortgages, aimed at borrowers with spotty credit, are due to reset sharply higher in coming months and officials fear as many as 500,000 borrowers could lose their homes.
The Bush administration and banking regulators have been engaged in talks with mortgage industry representatives to nail down a plan that would temporarily freeze rates on many of these loans.
Treasury Secretary Paulson said on Monday he hoped a deal could be announced by week’s end and Bush echoed this hope.
“I think they’re making pretty good progress,” Bush said.
Many subprime mortgages were repackaged as securities and sold to investors around the globe. As defaults began to mount, markets have become jittery and the flow of credit has slowed, threatening to further undermine the economy.
“We are addressing the current issues and home ownership is a current issue and no question it is a headwind. It is a part of why many people are saying the economy is slowing down,” Bush said.
“Secretary Paulson is working with a more complex industry than we’ve had in the past and that is why it has taken a while,” he said. “You’ve got people all around the world who now own U.S. mortgages.”
Democratic Party lawmakers on Tuesday sent Paulson a letter asking that he push for rules that would allow as many homeowners as possible qualify for the rescue plan.
“It would be a sad irony if this attempt to correct the damage done by poor underwriting standards ... was undone by criteria that made loan modifications and workouts available to too few borrowers,” the lawmakers wrote.
Reporting by Alister Bull; Editing by James Dalgleish
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