WASHINGTON – The Bush administration is working behind the scenes with industry on a plan to extend lower, introductory interest rates on home loans before they reset at higher levels amid hints by Fed Chairman Ben Bernanke of another cut in a key interest rate to keep the economy from falling into recession.
Treasury Secretary Henry C. Paulson and other top regulators met Thursday with loan servicing companies -- firms that collect and distribute loan payments -- and other industry executives. No formal agreement was announced, but an accord on this issue could be be revealed in the next week or two.
"We've all agreed that there should be some sort of standardized approach to reaching more homeowners faster," Treasury Department spokeswoman Jennifer Zuccarelli, who declined to name those at the meeting, said in response to questions.
A story published Thursday by American Banker named Washington Mutual Inc., Countrywide Financial Corp., Wells Fargo & Co. and JPMorgan Chase & Co. as companies participating in the briefing.
The mortgage industry and federal regulators have been under intense pressure from activists, lawmakers and consumer groups to help borrowers stave off foreclosure, particularly as adjustable-rate mortgages begin to reset, meaning much higher payments.
Last week, California officials announced a deal with four major loan servicing companies. That agreement with Gov. Arnold Schwarzenegger includes Countrywide, GMAC Financial Services, Litton Loan Serving and HomEq Servicing.
Meantime, Bernake, in a speech Thursday night to business executives meeting in Charlotte, N.C., suggested that another general rate cut might be needed to bolster the economy. The worsening credit crunch, a deepening housing slump and rising energy prices probably will create some "headwinds for the consumer in the months ahead," he said.
Bernanke said he expects consumer spending will continue to grow and suggested the country can withstand the current problems without falling into a recession. But he indicated that consumers could turn more cautious as they try to cope with all the stresses.
On Oct. 31, Bernanke and all but one of his colleagues agreed to lower the federal funds rate by one-quarter percentage point to 4.50 percent at the end of a two-day meeting.
The odds have grown that the country could enter a recession. A sharp cutback in consumer spending could send the economy into a tailspin. Against this backdrop, Fed policymakers will need to be "exceptionally alert and flexible," he said.
That comment probably will be viewed as a sign the Fed may lower interest rates when it meets on Dec. 11, its last session of the year. Twice this year the central bank has trimmed rates to keep the housing collapse and credit crunch from throwing the economy into a recession. Those cuts came in September and late October.
In the October meeting, Bernanke and his Fed colleagues signaled that further cuts might not be needed. Since then, however, financial markets have endured more turmoil. The housing slump has deepened, consumer confidence has plummeted and consumer spending "has been on the soft side," Bernanke said in a speech Thursday night to business people in Charlotte, N.C.
Bernanke spoke hours after the White House lowered its economic growth projection for 2008 due to the deteriorating housing market. The White House also raised its estimate for unemployment next year, but said inflation should moderate.
The Commerce Department reported that the economy grew at a 4.9 percent rate from July through September, the fastest pace in four years. The impressive performance, though, was not expected to carry into the final three months of the year, when analysts expect growth of 1.5 percent or less.