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Hank Paulson’s Remarks Regarding the Mortgage Markets
By JLP | December 3, 2007
Here’s a link to the complete text of Hank Paulson’s remarks regarding the mortgage markets. Here’s some of the highlights along with my thoughts:
And as I have said before, the housing market downturn is the biggest challenge to our economy. When home foreclosures spike, the damage is not limited only to those who lose their homes. Homes in foreclosure can pose costs for whole neighborhoods, as crime goes up and property values decline.
Avoiding preventable foreclosures, then, is in the interest of all homeowners.
Is it really? I think the answer depends on how much this is going to cost taxpayers. Artificially propping up a situation with a bandaid fix isn’t going to be in the best interest of all homeowners. I think this is much more about looking politically-correct during an election year!
Mortgage market financial innovation has benefited the U.S. economy and U.S. homeowners; it has also introduced some of the challenges we face today. Financial innovation led to the creation of mortgage products that put homeownership within the reach of more people. At the same time, innovation also made riskier loans – with no down payments or minimal documentation – more widely available. Similarly, securitization has brought benefits and challenges – making more capital available for mortgages, but creating greater market complexity. As a result, we now have an array of different market participants, often with different interests.
Actually, I think the “benefits” of financial innovation were temporary because most of these products were crap! Sure, people who couldn’t afford a house, got a house. However, now they are about to lose their house. Tell me how that was a good deal. “Financial innovation” enriched the mortgage brokers and the banks.
Based on what we have learned, we are implementing a three point plan to avoid preventable foreclosures and to minimize the impact of the housing downturn on the U.S. economy.
First, we are increasing efforts to reach able homeowners who are struggling with their mortgages. Second, we are working to increase the availability of affordable mortgage solutions for these borrowers. Third, we are leading the industry to develop a systematic means of efficiently moving able homeowners into sustainable mortgages. This morning, I will provide more detail on the three elements of this plan, an update on the private sector’s efforts, the government’s efforts, and the additional steps that are needed in each area.
Here’s where the taxpayer gets involved:
The government has a role to play, as well. First, we need to draw attention to these letters and urge borrowers who receive them to act on them. Secretary Jackson and I have been doing just that, recently we sent copies of these letters to all Members of Congress so they can alert their constituents. We are asking governors and mayors to do the same. We will also join HOPE NOW’s efforts to broaden its public service announcement campaign, to spread the word that hope is but a phone call away.
While increased industry funding is very important, we also need to do our part to support non-profit mortgage counseling organizations. For this public outreach campaign to be successful there must be enough trained mortgage counselors to answer the phone when homeowners call. The Administration requested funding for NeighborWorks America and other non-profit mortgage counseling operations in its budget. But the appropriations bill has yet to be finalized; Congress needs to get it done quickly.
I wonder how much this is going to cost us? Not only that, I wonder how much good this going to do?
Topics: Credit, Housing Market, Mortgages | 3 Comments »
December 3rd, 2007 at 7:16 pm
I was really prepared to hate this. I was. But the taxpayer portion of the “bailout” is largely just increased funding of non-profit mortgage counselors? It could have been a lot worse. Essentially, the mortgage companies are being left to clean their own mess, at their own expense and at the expense of investors in mortgage-backed securities who miscalculated risk. That’s exactly the kind of deterrent that should come from this whole thing.
Sure, I wish I’d had the foresight to buy a home I couldn’t afford so that I could take advantage of this, but I’m pretty sure my risk assessment is better than that of the people who will benefit from this, and I’ll come out ahead in the end.
December 3rd, 2007 at 11:19 pm
The taxpayer will still take a hit. This isn’t over.
All this will do is delay the inevitable. The people who got these exploding subprime ARMs bought too much house. They could barely afford the teaser payments. Their income is not going to go up enough to afford these mortgages even with a couple extra years of the teaser rate.
Someone has to take a loss here. When someone loans money, they expect to get repaid. So either the borrower takes a hit and loses his home, or the investor gets hurt with lower payments. Somewhere the taxpayer will end up paying whether it is bailing out the mortgages or the banks who own/created the CDOs.
December 3rd, 2007 at 11:25 pm
The taxpayer will end up footing the bill one way or another, I fear.
When someone loans money, they expect to be repaid. Usually, if the borrower can’t repay, he loses the house. Paulson is trying to change this rule…at least temporarily. This means the loaner will take a hit. I expect the guv to help out the lenders, meaning the banks, somewhere down the line. They are already creating liquidity with the Fed, which hurts taxpayers in the form of inflation.
This fix only delays the inevitable anyway. Most of these subprime borrowers could barely afford the teaser payments. They won’t be able to afford the full payment even if this is delayed a couple years or so.