- The Washington Times - Wednesday, January 9, 2008


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

Mr. 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,” Mr. Paulson said.

President Bush said yesterday that he is watching very carefully to see whether the struggling U.S. economy needs a short-term boost from the federal government.

“We’re listening to different ideas about what may or may not need to happen,” he said.

“We’ll work through this. We’ll work through this period of time.” But Mr. Bush added, “It’s going to take a while to work through the downturn.”

He wouldn’t comment on any specific ideas he is considering, such as tax cuts aimed at lessening the chance of a recession. “We’ll look at all different options.”

Meanwhile, the chief executive officer of District-based mortgage giant Fannie Mae, predicted yesterday that the housing market downturn is likely to persist into 2010.

The National Association of Realtors, also based in the District, reported a drop in pending home sales in November, but the trade group said it expects the sales pace to pick up significantly in the second half of this year.

The group said its seasonally adjusted index of pending sales for existing homes fell 2.6 percent to a reading of 87.6 from an upwardly revised October index of 89.9. The index, which was down 19.2 percent from a year ago, hit a record low of 85.5 in August.

Mr. Paulson did not provide any details on when the expansion of the program to assist struggling homeowners might go forward. The HOPE NOW alliance is a coalition of mortgage industry companies seeking to reach at-risk borrowers to help them avoid foreclosures.

To blunt a broader economic impact, Fannie President and CEO Daniel Mudd, speaking at a U.S. Chamber of Commerce event, urged lawmakers and lenders to pursue “the most generous means possible” to help out borrowers facing sharply higher mortgage payments in the next few years. But Mr. Mudd voiced only qualified support for the Bush administration’s plan.

Losses to investors from modifying loan contracts to help homeowners, as proposed by Mr. Bush, could reduce the available credit for mortgage securities and reverberate on Fannie and its smaller government-sponsored sibling, Freddie Mac of McLean.

The two government-sponsored entities buy up home loans made by banks and other lenders and then bundle them as securities for sale to investors worldwide.

Fannie Mae’s stock fell $2.60, or 7.6 percent, to $31.63 yesterday, while Freddie Mac shares declined $2.40, or 8.2 percent, to $26.76. Countrywide Financial Corp., the nation’s largest mortgage lender, released a statement denying rumors that it would soon file for bankruptcy. Both Fannie and Freddie are major buyers of loans made by Countrywide.

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