Paulson Offers Gloomier Outlook for Home-Loan Defaults

Treasury Secretary Henry Paulson, in an interview with The Wall Street Journal, said he is "aggressively encouraging" the mortgage-service industry to provide help "broadly" to struggling borrowers of resetting adjustable rate loans, instead of an earlier strategy of handling problems individually case-by-case. Mr. Paulson's outlook has become gloomier and more worrisome. He said the resetting mortgage problems will be "significantly bigger" next year because mortgages taken out in 2006 had lower underwriting standards, no amortization and no down payments. "This is not business as usual. This is an extraordinary situation," said Mr. Paulson in response to Oklahoma Republican Sen. Tom Coburn's objection to a Congressional bill that would allow the Federal Housing Administration to assist borrowers. Mr. Paulson called the Senate's failure to pass legislation to allow Fannie Mae and Freddie Mac (the nation's largest mortgage purchases and credit guarantors) the ability to play a bigger role in the market "very disappointing." One possible fix, at least temporarily and possibly through 2008, is to freeze rates on resetting adjustable rate mortgages for troubled homeowners. California and four major-loan servicers including Countrywide Financial endorsed such a temporary rate freeze measure on Tuesday. Meanwhile, stocks in Asia fell across the board Wednesday and European benchmarks are broadly lower intra-day on heightened concerns over the U.S. economy, resulting in further weakness in the dollar amidst record oil prices and reduced expectations of further Fed rate cuts.

Sources: Wall Street Journal, Reuters
Commentary: Follow-up on Expensive ARMs • 11 Places to Find Foreclosed Real Estate • Housing Market Tracker - Subprime Review
Related: WSJ-Paulson interview excerpts

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Comments

[kurt walter]

Freeze rates? That is B.S. ... let the market shake out. It will be painful, but so be it. No more short term ideas, delaying the inevitable, please. According to the constitution, the federal government has no business adopting cockeyed ideas for the current credit situation. Let the law of supply and demand handle the problem.