Overhaul of Mortgage Rules Sought; Paulson Cites Excess, Abuse
Byline: Patrice Hill, THE WASHINGTON TIMES
Treasury Secretary Henry M. Paulson Jr., warning that the nation's housing crisis will continue to be a drag on the economy next year, for the first time called for national regulation of mortgage brokers and other strong federal rules to avert future housing busts.
In a speech yesterday at Georgetown University Law School, Mr. Paulson indicated that the administration was abandoning its previous piecemeal approach to remedying mortgage defaults and home foreclosures and said that a complete overhaul of mortgage regulation is needed.
"We also need to make some changes in our laws and rules in order to prevent some of the excesses and abuses of the last few years from happening again," he said, adding that the changes must be crafted to avoid cutting off credit for homeowners while avoiding a "bailout" of housing speculators and investors.
His warning that the deep housing slump will continue to threaten economic growth echoed a similar assessment by Federal Reserve Chairman Ben S. Bernanke and comes at a time when a steep jump in oil prices has emerged as a big obstacle for the weakened economy. Worries about housing and energy contributed to a second day of losses on Wall Street yesterday.
Mr. Bernanke, in a Monday night speech to the Economic Club of New York, predicted that housing, which has cut the economy's growth rate by nearly a percentage point in the past year, would continue to be a "significant drag" in coming months, exacerbated by the increased difficulty in obtaining jumbo and subprime mortgages since a credit crunch began in July.
Evidence of another leg down in the housing market emerged yesterday, with home-builder sentiment falling to a record low and the Mortgage Bankers Association predicting another 18 percent drop in mortgage originations next year.
Mr. Paulson, in the administration's frankest assessment of the housing debacle to date, outlined how the housing downturn is weighing on the economy, with housing construction down by 40 percent and construction jobs down by 25 percent since early 2006. He said foreclosures among the one-fifth of U.S. home loans that are considered subprime have soared 200 percent since 2000 and will go still higher, while default and foreclosure rates are also surging among prime borrowers.
A separate report by the Government Accountability Office yesterday cited many of the same statistics and said that the foreclosure and default rates are the worst in a generation.
"The housing decline is still unfolding, and I view it as the most significant current risk to our economy," Mr. …