Video: Paulson on economy

updated 1/8/2008 12:19:53 PM ET 2008-01-08T17:19:53

Treasury Secretary Henry Paulson said Tuesday the administration was exploring what would be a significant expansion of the program to help at-risk mortgage holders.

Paulson, in an interview on CNBC, said the administration was involved in discussions with the mortgage industry to expand a current program to freeze adjustable rate mortgages for five years to include borrowers of loans at prime rates. Currently, the rate freeze only covers a much smaller segment of adjustable rate loans, those made to subprime borrowers. Those are borrowers with weak credit histories.

“One thing we will consider with the HOPE NOW alliance is ... maybe expanding this beyond subprime borrowers to other borrowers,” Paulson said in the CNBC interview.

Paulson did not provide any details on when this expansion might go forward. The HOPE NOW alliance is a coalition of mortgage industry companies which are seeking to reach at-risk borrowers to help them avoid foreclosures.

The administration last month unveiled its most significant move to date to deal with the mortgage crisis when it brokered an agreement with the mortgage industry to freeze rates on certain subprime mortgages for five years in an effort to help homeowners in danger of losing their homes when their lower introductory rates reset to sharply higher levels in the coming two years.

There are 1.8 million subprime mortgages that are scheduled to reset to higher rates this year and in 2009.

Paulson in the CNBC interview also called on Congress to quickly pass pending legislation that would reform the Federal Housing Administration, which he said would help 250,000 at-risk homeowners who have adjustable rate subprime mortgages refinance to more affordable loans and another piece of legislation that would expand the availability of so-called “jumbo” mortgages, loans higher than $417,000.

The two giant government-sponsored mortgage companies, Fannie Mae and Freddie Mac, cannot presently back these jumbo loans, which restricts their availability.

On Monday, Paulson had said in a speech in New York that the current housing correction was “inevitable and necessary” following five years of an unsustainable boom which saw sales and home prices hit record levels.

Paulson said the Bush administration is working to combat the country’s severe housing crisis but there is no simple solution.

Paulson said the country was facing an unprecedented wave of 1.8 million subprime mortgages that are scheduled to reset to sharply higher rates over the next two years. He said this raised the threat of a market failure and was the reason the administration brokered a deal with the mortgage industry to freeze certain subprime mortgage rates for five years to allow the housing market to recover.

“By preventing avoidable foreclosures, we will safeguard neighborhoods and communities and fulfill our responsibility of protecting the broader U.S. economy,” Paulson said in a speech in New York. “However, let me be clear: there is no single or simple solution that will undo the excesses of the last few years.”

Paulson said that the deal the administration brokered with the industry to freeze certain subprime mortgage rates for five years did not involve the use of any taxpayer money. Conservative critics have complained that the administration’s plan represented government intrusion in the operation of markets that would end up rewarding some people who had taken out risky mortgages.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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