Paulson to mortgage industry: help curb defaults

Treasury Secretary calls on mortgage lenders to do more to identify borrowers in danger of default; urges flexibility.

WASHINGTON (AP) -- Treasury Secretary Henry Paulson urged the mortgage industry on Wednesday to do more to identify and help people who risk losing their homes because their monthly mortgage payments are resetting to higher levels.

Paulson said one promising initiative was a mass mailing lenders participating in the Hope Now alliance are planning to use to let people know where they can get help.

U.S. Treasury Secretary Henry Paulson discusses India - U.S. relations, and how to overcome the supbprime mortgage crisis.Play video

The new letters will start going out on Nov. 19. He said the effort involves two stages - "first, making contact with a borrower who is in trouble and, second, determining if there is an affordable mortgage product for that borrower and taking action."

More than 1 million people could be in danger of losing their homes over the next two years as their initial low introductory adjustable rate mortgages reset to much higher rates.

After a meeting at Treasury on Wednesday with members of the alliance, Paulson said executives of the financial services industry told him they were developing methods to systematically evaluate a borrower's ability to make higher monthly payments and also determine what other options were available to refinance to lower rates.

"I am calling on industry participants to review their existing practices and adopt specific criteria that will quickly identify borrowers who can keep their homes and follow up with a refinancing, a loan modification or other flexibility," Paulson said. "Developing clear criteria now will allow us to gauge the success of these efforts in avoiding preventable foreclosures."

Paulson said he continues to view the housing and mortgage market troubles as the most significant risk now facing the economy.

Last week, the Joint Economic Committee estimated there will be 1.3 million foreclosures from mid-2007 through 2009 in subprime mortgages, loans provided to borrowers with weak credit histories.

Those foreclosures will wipe out an estimated $71 billion in housing wealth directly and another $32 billion indirectly by lowering the values of neighboring homes, according to the report by the JEC's Democratic staff.

The report predicted that will end up costing states $917 million in lost property tax revenue through the end of 2009, with the states of California, New York, New Jersey and Florida projected to be among the biggest losers.

JEC economists cautioned that their forecast is heavily dependent on how much home prices decline during the slump. If the downturn turns out to be worse, it will mean even bigger price declines, more foreclosures and more dollar losses in both home values and property tax collections.

Sen. Charles Schumer, D-N.Y. and chairman of the JEC, said his panel's report underscored the need for the administration to move more quickly to offer government assistance to help homeowners who are in danger of defaulting on their mortgages.