20.12.2007 20:00 Real Estate
"The industry's dealing with an unprecedented situation, and the steps they're taking to fast-track these modifications are intended to approximate an outcome that's a market-related outcome," Paulson was quoted as saying during an interview with the newspaper's editorial board published on Thursday.
Paulson said the mortgage securitization model of housing finance has worked well during an "up period" in U.S. home prices. But now, the scattering of mortgage assets among investors has created an "unwieldly situation" that is making it difficult for lenders and servicers to handle a massive volume of loan modifications that are needed.
The Treasury-backed loan modification plan is aimed at avoiding unnecessary foreclosures that will further drag down house prices, he said.
"I think what we're doing is avoiding a market failure that would have forced housing values down in a way that was not in the investors' interest, and in a way that the market wasn't intended to work," Paulson told the paper.
Of 1.8 million adjustable rate mortgages that are due to reset to higher interest rates over coming months, Paulson said his plan could keep 1.2 million out of foreclosure -- 600,000 fast-tracked into modifications and another 600,000 who will get refinanced or an interest rate freeze.
This would free up the industry's resources to concentrate on the other 600,000 that will require individual loan modifications.
"There's a reasonable number of those that will result in foreclosure -- people will become renters again," Paulson said.
"So again, this was never about 'Let's see how many interest rates people can freeze.' It's how can you avoid foreclosures that should be avoided, which are in no-one's interest," he added.
(Reporting by David Lawder; editing by Gary Crosse)
