Treasury Secretary Henry Paulson Speaks About Foreclosure
In a recent speech delivered at Georgetown University in Washington, DC, Treasury Secretary Henry Paulson addressed the foreclosure crisis and discussed some of the action the government has taken of late to relieve the stresses of foreclosure on many American families.
Paulson's speech included an overview of the US housing economy over the past several years and an analysis of the practices that may have led to the current rash of foreclosures plaguing US citizens. While his disclosures may not have been the most surprising, especially to those struggling to get their homes back, his clear presentation is certainly worth summarizing.
One of the major factors in the economy that paved the way for foreclosures, according to Paulson, was the financial innovation that occurred in the lending industry in recent years. Though subprime loans were nothing new when the real estate market started taking off, the hybrid and no-money-down subprime loans were unprecedented.
Though lending practices such as this allowed more families than ever to experience homeownership (at least in the short term), they also provided plenty of traps for unsavvy borrowers. Because the lending methods were new, legislation and regulation had not yet caught up with them.
Another factor Paulson cited in his speech is the "patchwork structure" of lending regulation tools. He notes that such regulations are run at the state, rather than the national, level, and so differ from region to region. Paulson expressed a desire to create more uniform, efficient regulation standards, which he believes will allow for easier and better-enforced monitoring.
One of the most interesting points Paulson made during his speech concerned homeowners' role in foreclosure. He quoted statistics that suggested approximately 50% of foreclosure victims never consulted with their mortgage counselors or servers before they lost their homes.
This, according to Paulson, must change. By taking action as soon as financial problems present themselves, homeowners have a better chance of preventing foreclosure. Waiting until the last minute to seek foreclosure help can mean serious limitation of foreclosure-fighting choices and difficulty in succeeding.
Paulson was careful to mention that he was not attempting to lay blame on any group for the foreclosure crisis. He believes lenders, loan servicers and investors all have a duty to act responsibly in their lending practices.
He spoke of Hope Now, a bipartisan group he helped launch this month to offer more information and assistance to homeowners struggling with foreclosure. He also proposed a model in which mortgage lenders would work together to identify homeowners in trouble before they reach a crisis point.
Generally, Paulson declared that new legislation needs to be passed to prevent a recurrence of the excesses and abuses that abounded in the recent housing surge.
One critic of Paulson's initiatives suggests that his call to action came suspiciously soon after Wall Street investors complained of financial difficulties resulting from foreclosure side-effects.
Paulson did recently orchestrate an agreement (which he emphasized was "not a bailout") between several large investment firms to ease their financial burdens.
There may be some truth in the accusations. Either way, the Secretary of the Treasury is taking note of foreclosure and its effects, and taking steps to help those affected.