Paulson considers homeowner aid

Treasury Secretary Henry M. Paulson Jr. raised the possibility that some sort of “systematic approach” may need to be developed to help homeowners with good credit whose mortgages are resetting to higher monthly payments.

Paulson last month brokered an agreement reached by mortgage lenders, servicers and investors that is designed to help sub-prime homeowners avoid foreclosure. Prime borrowers -- people with good credit histories -- aren’t eligible for that program, which will freeze interest rates on some mortgages for five years.

But in a speech Monday in New York, the Treasury chief said enhancements to the initiative might be extended to “adjustable-rate mortgages other than sub-prime if it will benefit homeowners and investors.”

The steep slump in housing has been a serious drag on the overall economy, boosting fears that the country could topple into a recession.

Paulson called the current housing downturn unavoidable after what occurred during the five-year boom in which sales and prices climbed to record levels.

“After years of unsustainable price appreciation and lax lending practices, a housing correction is inevitable and necessary,” Paulson said.

He said the correction was taking a toll on the economy that would continue for months.

“It will take additional time for markets to regain confidence,” the Treasury secretary said. “The overhang of unsold homes will contribute to a prolonged adjustment and poses by far the biggest downside risk.”