Treasury Secretary Paulson Outlines Efforts to Stabilize Mortgage Market

Treasury Secretary, Henry Paulson, spoke to students at Georgetown University Law Center on Tuesday and outlined Treasury's strategy to provide economic stability to a shaky mortgage economy and avoid over regulating the marketplace.   In his words, "innovation often out paces regulation;" and his remarks show his hand.

His first priority is to provide relief for struggling borrowers whose primary residence is at risk.  Foreclosures are costly and painful for homeowners, as well as for mortgage servicers and investors.  Second, the spillover effect of massive defaults on the overall economy creates a "moral hazard" that needs to be minimized.   Third, he recommends identifying public policy changes that will reduce the likelihood of repeating some of the excesses of recent years while still making credit available to homeowners.   However, he cautions against bailing out lenders or property speculators, citing that "they are more likely to repeat their mistakes."

Help for struggling homeowners will come in the form of early education for homebuyers, full and clear disclosure by lenders and mortgage brokers, consistency and integrity in the origination process, and accountability of predatory lenders--All in an effort to educate and protect the home buying public.

Finally, Secretary Paulson, identified a bank-led fund intended to shore up structured investment vehicles and boost liquidity of higher-quality assets.    The plan unveiled on Monday,is a collaboration between Bank of America, Citigroup, and JPMorgan Chase and will create a fund aimed at preventing the dumping of billions of dollars in bonds linked to subprime mortgages and other debt.   In their plan, a pool of funds would be available for the refinance of mortgages for borrowers with strong credit scores who are saddled with mortgages that are primed to reset to dangerous levels.  Not only is the plan designed to help qualified borrowers; it, hopefully, will have the secondary effect of creating renewed confidence in the mortgage backed securities--A key the availability of new mortgage money.

Secretary Paulson seems to be taking some steps in the right direction in his efforts to help ease the crisis created by unwitting buyers, unscrupulous subprime mortgage lenders, and speculators.    These proposals, coupled with pressure on mortgage lenders to work with troubled borrowers and the elimination of the penalty imposed by the IRS when mortgage loan funds are forgiven, are all measures likely to help homebuyers, homeowners, and the mortgage industry weather the subrprime storm that is surely going to continue for at least another 18 months.   

Comments

[Chas88]

"...a pool of funds would be available for the refinance of mortgages for borrowers with strong credit scores who are saddled with mortgages that are primed to reset to dangerous levels. Not only is the plan designed to help qualified borrowers;"

If these borrowers are qualified with strong credit scores, why is a pool of funds necessary? They should be able to refinance on their own wihtour any assistance.

[Theresa Nielsen]

We need a sound economy and to circulate real wealth instead of debt. Many are doing research into Presidential candidate Ron Paul-08-, who calls for more responsible banking as our Constitution and Founding fathers intended. We are just correcting artificially the market but these problems are likely to occur again due to special interests having their hands on our Political policies.

[tom carmody]

It is interesting that the government agencies have been dealing with these "unscrupulous" mortgage lenders for years without enforcing regulations on them. Then, when the crunch comes, points the finger at them.

[Lillian]

Help all the people to have the dream came true!!!

[Patricia Hutchinson]

Okay, so we're supposed to bail out the homeowners to help prevent a "moral hazard" but the lenders can't be helped because "they are more likely to repeat their mistakes?" Excuse me? How about allowing the borrowers to suffer the consequences of their choices to borrow more than they could afford to borrow? No one FORCED the borrowers to sign a mortgage they couldn't afford, they did that of their own free will. Mortgage companies do what they do... loan money, it's up to the borrowers to decide for themselves what they can or cannot afford. The federal government needs to stay out of this and let the free market recover as it always does. People who aren't allowed to suffer the consequences for their mistakes are just doomed to repeat them.

[Jack Cooney]

Well, well. Sounds good, but will be too little, too late, for buyers whose credit scores have already been trashed by inability to meet already-adjusted mortgages, or who have already lost their jobs for any number of reasons. A whole lot better plan better be thunk up & implemented very soon, or we are going to have a BIG recession, maybe even a depression, as the remaining 2.2 MILLION ARM loans "adjust", and the domino effect on the economy inevitably occurs, in an election year...! I am saddened and alarmed that our elected representatives at all levels were too ignorant, or stubborn, or greedy, to foresee the calamity that was bound to follow. That, along with the Iraq war, show how shallow our level of civilization and control, really are! Verrry scary.