Paulson: Massive mortgage workouts needed
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Happy Thanksgiving.
Based on the response to the previous item, it’s a safe bet this piece of news will not be popular on this blog: ‘U.S. Treasury Secretary Henry Paulson, convinced individual workouts will not solve a worsening mortgage crisis, is pressing the industry to help large groups of borrowers qualify for more affordable loans.’
More, from Reuters tonight: ‘In an interview with the Wall Street Journal, Paulson said he he was ‘aggressively encouraging’ the mortgage servicers who collect payments from borrowers to develop new criteria that would allow large numbers of borrowers to qualify for mortgages with better terms. This is a shift from Paulson’s previous strategy of encouraging the industry to work individually with borrowers.’
The other headline from the WSJ interview is that Paulson predicted the default/foreclosure problem ‘will be significantly bigger next year because 2006 (mortgages) had lower underwriting standards, no amortization, and no down payments.’
In other words, if you thought the 2005 vintage of mortgages was crappy, you ain’t seen nothing yet.
Paulson’s comments raise a lot of questions, not the least of which is whether this is good policy. I know in advance many of you think it’s terrible policy, and that it encourages and rewards borrowers who made poor financial decisions. Beyond that: Will Paulson’s jawboning work? Will lenders rewrite mortgages by the hundreds of thousands without any regulatory or legislative relief in return? Will the investors who own the mortgages agree, again without anything in return? Or will there be some horse-trading behind the scenes?
Update: Tanta, in a ‘Dear Mr. Paulson’ post at Calculated Risk, opines on likely horse-trading and regulatory relief: ‘Concrete bennies have to be put on the table. Regulatory relief. Fun with reserve and capital calculations. Approval of mergers and acquisitions. You know the drill. This is about maximizing profit. You are going to have to do something that makes this profitable, if you’re going to expect lenders to do it on a large scale. Your job, of course, will be to write the PR that says that all this ‘regulatory relief’ to for-profit banks and mortgage companies is all about Helping the Poor and being Heroes to Homeowners.’
Your thoughts? Comments? Insights? Email story tips to lalandblog@yahoo.com.
Photo Credit: Treasury.gov
Hat tip: Sunsetbeachguy