Housing turmoil a 'risk' to economy
In a speech marking the Bush administration's strongest comments on the housing slump so far, Paulson told a Georgetown University law school audience that the government and lenders must move forcefully to aid millions of homeowners whose adjustable-rate subprime mortgages reset to higher levels in the next 18 months.
Paulson added that the problems go beyond subprime loans, which are higher-priced loans aimed at those with poor credit. Delinquencies are rising among borrowers with conventional mortgages. Further, troubled loans are spread around the country, making it hard to handle the problem.
"The housing decline is still unfolding, and I view it as the most significant current risk to our economy," Paulson said. "The longer housing prices remain stagnant or fall, the greater the penalty to our future economic growth."
New home sales are down more than 20 percent from a year ago, inventories are piling up and prices are declining in many areas. Falling prices, and a credit crunch crippling parts of the mortgage market, make it tougher for consumers to refinance costly loans.
Treasury officials announced Monday that they'd helped broker a deal among major banks to buy as much as $100 billion in securities, including mortgage-backed bonds, to help calm credit markets. Earlier this month, administration officials, lenders, mortgage-servicing companies, counseling groups and financial firms laid out a coordinated effort to reach borrowers.
The Federal Reserve plans tougher rules on mortgage lending by year's end, and Congress is poised to crack down on predatory practices and liberalize federal mortgage-lending programs to help borrowers.
Paulson said Tuesday many subprime borrowers could be helped if they were reached earlier, quoting studies showing half of borrowers in foreclosure never had a prior discussion with counselors or lenders. He emphasized the need for lenders to immediately show more flexibility in modifying loans.
The Homeownership Preservation Foundation, part of a coordinated coalition, runs a free hotline for homeowners in financial trouble (888-995-HOPE, or 888-995-4673).
The group got 57,000 calls from July to September, up 89 percent from the second quarter of the year. Almost half the callers had adjustable-rate loans.
"It's absolutely essential that investors, lenders and servicers are part of what we do," said Nicolas Retsinas, director of Harvard's Joint Center for Housing Studies. But he asks, is Paulson's "bully pulpit enough? If that's all we're doing, what is the role for government intervention? There are a lot of ideas floating around."
Underscoring the distress, real estate analyst DataQuick Information Systems said home sales in Southern California plunged to the lowest level in more than two decades in September. Houston, which had been stable, saw the biggest one-month drop in more than a decade in September, according to the Houston Association of Realtors.
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