From the Wall Street Journal:
Paulson Shifts on Mortgages
Treasury Secretary Seeks Broad Moves by Lenders;
‘Not Business as Usual’
By DEBORAH SOLOMON
November 21, 2007; Page A8
U.S. Treasury Secretary Henry Paulson, concerned that millions of homeowners aren’t being helped quickly enough, is pressing the mortgage-service industry to help broad swaths of borrowers qualify for better loans instead of dealing with mortgage problems on a case-by-case basis.
In an interview, Mr. Paulson said the number of potential home-loan defaults “will be significantly bigger” in 2008 than in 2007. He said he is “aggressively encouraging” the mortgage-service industry — which collects loan payments from borrowers — to develop criteria that would enable large groups of borrowers who might default on their payments to qualify for loans with better terms.
That’s a shift from his previous view that the problems didn’t warrant a group approach. Mr. Paulson said his outlook has evolved as he has learned more about the problem.
“We’re never going to be able to process the number of workouts and modifications that are going to be necessary doing it just sort of one-off,” Mr. Paulson said. “I’ve talked to enough people now to know there’s no way that’s going to work.”
While he stopped short of endorsing a proposal by Sheila Bair, chairwoman of the Federal Deposit Insurance Corp., to have mortgage companies freeze the interest rate on the two million mortgages due to reset to higher rates between now and the end of 2008, he said that’s “one idea.” Mr. Paulson said he supports finding some way to develop “standard criteria that’s going to allow for modification and workouts.”
Mr. Paulson faulted Congress for failing to pass several bills that could potentially provide relief for borrowers, and took aim at a Republican senator who is holding up a piece of legislation that would allow the Federal Housing Administration to play a greater role in the cleanup. While the Bush administration and Democrats in Congress backed the bill, Oklahoma Republican Sen. Tom Coburn objected, saying it will result in additional risky loans for which taxpayers will be liable.
Mr. Paulson said he understands Mr. Coburn’s concerns, but notes: “This is not business as usual. This is an extraordinary situation.”
He also called the Senate’s failure to pass legislation overhauling mortgage giants Fannie Mae and Freddie Mac “very frustrating,” saying that the two government-sponsored entities need to be playing a bigger role in the housing market.
“If we ever need them it’s during times like today, and they’re most valuable when there is distress in the mortgage market,” he said. “I’d like to see them playing an even bigger role.”
Fannie and Freddie, however, have recently posted losses that could hamper their ability to buy mortgages, since they are required to keep a hefty capital cushion.