WASHINGTON – The Obama administration will announce Friday a plan to reduce the amount some troubled borrowers owe on their home loans, three people briefed on the matter said.
The people declined to be identified because the program had not yet been announced. Earlier in the day, Herbert Allison, an assistant Treasury secretary, told reporters officials are close to expanding the administration's $75 billion foreclosure relief effort.
The plan to be unveiled Friday at the White House is expected to include at least three months of temporary assistance for borrowers who have lost their jobs. It also is expected to include an expanded effort to allow borrowers refinance into Federal Housing Administration loans.
The plan would expand the administration's foreclosure-prevention program, which has been a disappointment to date. Critics have complained the program does little to encourage banks to cut borrowers' principal balances on their primary loans. Nearly one in every three homeowners with a mortgage are "under water" — they owe more than their property is worth — according to Moody's
Allison cautioned that any new plan is "not going to mean that all underwater mortgages are suddenly in the program."
Obama administration officials have been studying such issues for months. An expansion of its foreclosure-prevention program has long been expected because only 170,000 homeowners have completed the process out of 1.1 million who began it over the past year.
And lawmakers have been frustrated by the lack of results.
"It has failed," said Rep. Jackie Speier, D-Calif., at hearing of the House oversight committee on Thursday. "It has failed miserably and unfortunately we are incapable of saying: OK, this was an experiment, it didn't work, let's try something else."
The program is designed to lower borrowers' monthly payments by reducing mortgage rates to as low as 2 percent for five years and extending loan terms up to 40 years. To complete the program, homeowners need to go through a three month trial period and provide proof of their income, plus a letter documenting their financial hardship.
Though $75 billion in funding is available to the more than 100 lenders who have signed up, only a tiny fraction has been spent. Lenders had received $58 million in incentive payments as of last month, according to the Government Accountability Office.
AP Business Writer Daniel Wagner in Washington contributed to this report.
BRUSSELS – Heavily indebted Greece won a major pledge of financial support from the other countries that use the euro and the International Monetary Fund on Thursday in a deal that aims to halt a government debt crisis undermining confidence in Europe's currency union.
The joint eurozone and IMF bailout program comes with strict conditions and makes no money available right now. It could be tapped only if Greece cannot raise funds from financial markets. And it would require the unanimous agreement of the 16 eurozone countries to release the loan funds.
Eurozone nations who agreed on the plan proposed by Germany and France, the zone's two largest members, also called for much tougher rules and sanctions to prevent government debt and deficits from getting out of control in the future. They also want stricter oversight for member economies to prevent another crisis.
The bailout program could be used to help other vulnerable eurozone nations such as Portugal and Spain who have seen debt soar after the global economic turmoil of the past several years saw their economies sink into recession.
The deal at a summit meeting Thursday night in Brussels was a clear victory for German Chancellor Angela Merkel, who had taken a tough line on any bailout. She demanded that a rescue for Greece only come when the country runs out of other options and said it must include the IMF.
It was also a comedown for the French and the European Central Bank, which had opposed turning to the IMF out of fear it would damage the euro's prestige and show that Europe was unable to solve its own financial woes.
The Washington D.C.-based lender has already joined the EU in bailing out and demanding budget cuts from three EU members that don't use the euro: Hungary, Latvia and Romania.
The eurozone-IMF deal was confirmed by German, Portuguese, Spanish and Greek officials at the summit of European Union leaders. They gave few details ahead of formal announcement of the deal. It was unclear whether the formal announcement would come later Thursday.
European and U.S. stock markets rose earlier Thursday on news that a financial rescue package for Greece was taking shape. Market worries over Europe's weeks-long hesitation to set up a safety net for eurozone members who can't pay their bills has sent the euro sliding to a 10-month low. The euro traded at $1.33, down from $1.51 in November.
Portugal's Prime Minister Jose Socrates told reporters all the 16 countries using the euro would contribute — including his indebted nation. "The interest rates will be reasonable and not speculative," he said.
Greek Prime Minister George Papandreou said the deal was "very satisfactory" and that he had managed to convince other governments "that they are now dealing with a Greece that is credible, that has a plan and a strategy for its course."
He also praised a European Central Bank statement that it would keep accepting lower-rated government bonds — such as Greece's — as bank collateral, which will shore up investor interest in buying Greek debt.
Germany and France earlier urged adoption of a deal in a draft text seen by the Associated Press. The document did not promise cheap loans to Greece — which wants to borrow at rates lower than those demanded by bond investors wary of the country's shaky finances.
It said loans would not be granted at average euro area interest rates, but be based on the borrower's creditworthiness to urge them to return quickly to normal market funding.
It does not mention a figure for a potential bailout. Two diplomats speaking on condition of anonymity say the total rescue plan for Greece could total some euro22 billion with the majority coming from European nations and the rest from the IMF.
Greece needs to borrow some euro54 billion this year and must refinance some euro20 billion in April and May. It has been able to sell bonds but says it cannot keep paying the high interest rates investors have been demanding.
Germany's Merkel was not sympathetic, saying financial rescue could only come in an "exceptional emergency."
Germany sees itself as a fierce defender of prudent budget spending and is unwilling to use its taxpayer money to help Greece, which overspent and faked budget figures for years. Merkel also faces a key regional election May 9 which could damage her center-right government by overturning its majority in Germany's upper house of parliament.
Associated Press writers Raf Casert, Elena Becatoros, Deborah Seward, Gretchen Mahan and Robert Wielaard in Brussels, Kirsten Grieshaber in Berlin and Carlo Piovano in London contributed to this story.
WASHINGTON – Record-low interest rates are still needed to rev up the economic recovery, Federal Reserve Chairman Ben Bernanke told Congress on Thursday.
Bernanke, in testimony to the House Financial Services Committee, essentially repeated the rationale behind the Fed's decision last week to hold rates near zero. He cited still-fragile economic conditions, and noted that inflation is low, which gives the Fed leeway to keep rates at rock-bottom levels.
The Fed chief didn't offer new clues about when the central bank might reverse course and start tightening credit. He said that would need to happen when the "expansion matures." Some investors and analysts think higher rates could come in the fall.
Deciding when to tighten credit is the biggest challenge facing Bernanke, whose second term started in February. Moving too soon could short-circuit the recovery. Waiting too long could unleash inflation and sow the seeds for new speculative bubbles in stocks or commodities or other assets.
One of the reasons the Fed is holding rates so low is because of stubbornly high unemployment, Bernanke said. It's now at 9.7 percent, a potential restraining force on the economy's rebound.
Bernanke said the Fed "will not be able to wait until things are completely back to normal" before it starts to boost rates. But the Fed wants to make sure that the economy is on a sustainable growth path and that jobs are being created, he said.
The Fed also wants to see more lending by banks before it starts tightening credit, Bernanke said.
"The key point ... is that the Fed is no closer to implementing its exit strategy," said Paul Dales, an economist at Capital Economics. Bernanke's remarks suggest "he is in no hurry" to raise rates, Dales said.
On Wall Street, the Dow Jones industrial average, which had rose as much as 119 points earlier in the session, pared gains late in the day on renewed concerns about Greece's debt problems. The Dow closed up 5.06 points.
The Fed kept a pledge last week to hold rates at record lows for an "extended period," a decision that drew one dissent.
Bernanke said the term "extended period" isn't a fixed number of months. Rather, it is tied to how economic conditions evolve. If the economy were to rebound more strongly than anticipated, then the Fed would "respond appropriately" and start raising rates, Bernanke explained.
Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, however, expressed concern that keeping rates at record lows could cause a buildup of "financial imbalances" and put the economy's stability at risk. Analysts took that to mean low rates could spur a new speculative bubble later on that could burst and hurt the economy.
A housing boom that went bust thrust the country into the worst economic and financial crises since the 1930s.
In other observations, Bernanke said the housing market is "still quite weak."
Nonetheless, the Fed is on track to shut down a $1.25 trillion mortgage-securities-buying program at the end of this month. The program has lowered mortgage rates and bolstered the housing market.
Bernanke said the Fed will monitor closely how mortgages rates react after the program ends. The Fed could revive the program if the economy weakens.
The Fed chief also welcomed a new Bank of America program that aims to reduce record-high foreclosures by erasing debt of some of its most-troubled borrowers. He said he hopes other banks will follow suit.
Rep. Barney Frank, D-Mass., chairman of the panel, acknowledged the delicate job ahead for Fed policymakers as they remove supports and tighten credit.
"They are aware of the need to undo this in a way that is protective of the taxpayers, but also is not going to damage the economy," Frank said.