Bush To Propose Bailout — But Likely Won’t Call it a Bailout

Numerous outlets are reporting this morning that President Bush is set to unveil an “aid package” for troubled borrowers intended to help homeowners with risky mortgages stay in their homes. From the AP:

Offering federal aid for strapped mortgage holders, the White House outlined proposals Friday to help borrowers hard hit by credit problems and the housing slump … White House press secretary Tony Snow said he could not provide an estimate of how much the proposals would cost taxpayers or what affect they would have on the housing market. He bristled at questions about why the measures had not been taken sooner. “I’m sure we’ll have plenty of time for backseat driving,” Snow said. The White House said the plan was not a bailout for lenders or speculators.

But the plan, in all likelihood, is a bailout for borrowers, which by extension means it will likely also serve as a bailout for many lenders and many speculative home purchases. The same AP story outlines the key aspects of the proposal:

On Friday, Bush planned to:

  • Urge Congress to pass legislation that would give the Federal Housing Administration more flexibility in assisting mortgage holders with subprime mortgages.
  • Pledge to work with Congress to reform the tax code to help troubled borrowers rework their loans.
  • Call for rigorously enforcing predatory lending laws and strengthening lending practices.

I’m guessing here that the tax code reforms will have to do with short sales — most short sales result in a tax bill to the seller covering the “shorted” amount. A change here would enable short sales en masse. HW readers know that I believe a borrower bailout won’t work. I’ll withhold analysis here until more details emerge.

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