Paulson: Many Current Foreclosures Not Preventable
Amid a growing clamor from consumer groups and some Congressional and local civic leaders about a perceived need to "do more" to stem a growing tide of residential foreclosure activity, Treasury Secretary Henry Paulson suggested Tuesday that many of the foreclosures now working through the nation's housing system aren't of the "preventable" variety. In remarks made at an FDIC mortgage lending forum, Paulson said that many foreclosures now being observed are simply an indication of a housing market undergoing a necessary correction. "Even with a strong economy and strong housing market, we saw 800,000 foreclosures started in 2004," he said. "Although regrettable, this is normal, and attributable to life events, such as job loss. Public policy cannot be expected to prevent these foreclosures. Many of today's unusually high number of foreclosures are not preventable." His remarks come in stark contrast to activist consumer groups, who as of late have been railing against what they see as widespread predatory lending and servicing practices by bankers; some have gone so far, as in Philadelphia recently, to suggest that all troubled mortgages be written down to whatever level a borrower can afford. The California Reinvestment Coalition exemplifies the approach being taken right now by many consumer groups: the group released a study on July 3 that suggested servicers aren't doing enough to help troubled borrowers, on the basis of finding that 90 percent of loan counselors had reported that borrowers received "unaffordable loans." Paulson's remarks show he's not buying any of it. "Due to the lax credit and underwriting standards of the past years, some people took out mortgages they can't possibly afford and they will lose their homes. There is little public policymakers can, or should, do to compensate for untenable financial decisions," he said. "And in the midst of rapid price appreciation, some people bought homes anticipating an immediate profit. Now that their investments have not turned out as they had hoped, these people may walk away, even though they can afford their mortgage payment." We've found out that these same people also tend to point fingers at the lender, too, whether justified or not.