Secretary Henry M. Paulson, Jr. made clear Monday that the Department of Treasury opposes taxpayer funded bailouts.
In statements to the National Association of Business Economists, Secretary Paulson stated that “housing poses the biggest downside risk to our economy, and most forecasters expect a prolonged period of adjustment.”
He noted that a number of initiatives focused on the housing have provided significant amounts of data that were being examined. For example, HOPE NOW issued a release the same morning indicating it had helped 1.035 million homeowners since July 2007.
HOPE NOW indicated there were 3 times as many workouts as completed foreclosure sales.
Secretary Paulson then went on to state that the current data led him to three conclusions:
First, many in Washington and many financial institutions have been floating proposals for a major government intervention in the housing market, with U.S. taxpayers assuming the costs of the riskiest mortgages. Today, 93 percent of American homeowners – 51 million households - pay their mortgages on time. Many are on tight budgets, sacrificing other things in order to make that payment. Only 2 percent are in foreclosure.
Most of the proposals I’ve seen would do more harm than good — bailing out investors, lenders or speculators who, instead of getting a free-pass, should be accountable for the risks they took. Let me be clear: I oppose any bailout. I believe our efforts are best focused on helping homeowners who want to stay in their homes.
Second, this is a shared responsibility of industry, government and homeowners. We in government are working to expand options through the FHA, and we’ve worked with the industry to reach as many homeowners as possible to let them know that help is available. There is more that government and industry can do, and our efforts will continue to evolve. Homeowners have responsibilities as well. If borrowers won’t ask about solutions, there is only so much that can be done on their behalf.
Third, the current public discussion often conflates the number of so-called “underwater” homeowners – that is, those with mortgages greater than the value of their house – with projections of foreclosures. Let’s be precise: being underwater does not affect your ability to pay your mortgage, nor create a government responsibility for assistance. Homeowners who can afford their mortgage should honor their obligations — and most do.
Obviously, being underwater is not insignificant to homeowners in that position. But negative equity does not necessarily result in foreclosure. Most people buy homes as a long-term investment, as a place to raise a family and put down roots in a community. Homeowners who can afford their payments and don’t have to move, can choose to stay in their house. And let me emphasize, any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator – and one who is not honoring his obligations.
We know that speculation increased in recent years; a resulting increase in foreclosures is to be expected and does not warrant any relief. People who speculated and bought investment properties in hot markets should take their losses just like day traders who speculated and bought soaring tech stocks in 2000.
For a complete copy of the comments, click here.
Senator Christopher J. Dodd (D-CT), Chairman of the Senate Committee on Banking, Housing and Urban Affairs, quickly criticized the Secretary’s position, stating:
The Treasury’s efforts are certainly one piece of the puzzle but, frankly, Hope Now does not have the resources or capacity to deal with the sheer size of the problem that has millions of Americans in financial dire straits. The program is far from perfect – repayment plans outnumber modifications by over two-to-one so far. There is also a question as to whether these modifications are long-term, or whether the servicers are simply adding arrears back into the loan, resulting in a higher payment for some borrowers that receive a so-called modification. Furthermore, media reports call into question exactly how Treasury is crunching its numbers, and how much of their agenda is merely a publicity ploy. It is hard to imagine that the same Administration whose oversight – or lack thereof – led us into the mortgage crisis will be able to devise a plan strong enough to pull us out of it. We need a multipronged approach to this complex problem, which is why I have introduced several ideas to help as many homeowners as possible.
The Chairman’s statement did not address whether he also opposes a taxpayer bailout of investors, lenders and speculators as the Secretary identified. And the Secretary’s statement did not indicate whether homeowners who stretched too far to purchase overpriced homes are also included in the term speculators.
The answers to these two questions would prove very insightful.
Tags: Consumer Protection, Industry Involvement, Legislation, Loan Modifications/Workouts, Mortgage Banking - General by the Editor
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