By Robert Schroeder
RISMEDIA, Sept. 14, 2007-(MarketWatch)-More mortgage products are needed to help homeowners keep their houses, Treasury Secretary Henry Paulson said Wednesday. Speaking before a meeting with mortgage-servicing companies, Paulson said the Bush administration is working to keep as many homeowners in their homes as possible.
He said that the administration is identifying borrowers who may face expensive mortgage resets and that “we need an expansion of mortgage-financing products.”
However, “it’s going to take awhile” for problems in the subprime-mortgage market to be corrected because many loan resets will take place over the next 18 months to two years, Paulson said.
Paulson also took note of the ongoing crunch in financial markets and said the turbulence “will take some time to work its way out.”
At the same time, he said, “this is all happening against the backdrop of a strong economy.”
In attendance at the hour-long Treasury Department meeting were Angelo Mozilo, chairman and chief executive of Countrywide Financial Corp, the nation’s largest mortgage lender; William Longbrake, vice chairman of Washington Mutual; and William Beckmann, president and chief operating officer of CitiMortgage Inc., a Citigroup subsidiary.
The administration and Congress have been scrambling to find ways to help struggling homeowners remain in their houses as subprime troubles continue to ripple through the mortgage market. Nearly 2 million adjustable-rate mortgages are scheduled to reset to higher rates by the end of next year.
Late last month, President Bush offered proposals including making it easier to refinance such loans through the Federal Housing Administration.
Bush’s proposal is one of several to come from Washington. There have also been calls to allow mortgage-buyers Fannie Mae and Freddie Mac to purchase more home loans and guarantee more expensive loans.
Earlier Wednesday, Fannie Mae’s chief executive said the company stands ready to supply liquidity to the mortgage market.
Speaking to the National Association of Federal Credit Unions, CEO Daniel Mudd said Fannie is continuing to discuss a lifting of the cap on the amount of mortgages it may purchase. The company’s portfolio of mortgages is currently capped at $727 billion.
Fannie has asked its regulator for permission to buy more mortgages to pump more money into the market, but the regulator has so far rejected the request.
Some in Congress want to allow Fannie Mae to buy loans that are more expensive than the current limit of $417,000. Mudd said, “We are ready to act” if lawmakers approve the increase in the limit, known as the conforming loan limit.
Fannie Mae’s shares closed 1.4% lower on Wednesday, at $62.84.
Meanwhile, Sen. Charles Schumer, D-N.Y., has scheduled a hearing about the threat to the broader economy from the subprime turmoil on Sept. 19. Witnesses include the director of the Congressional Budget Office and the CEO of the Center for Responsible Lending.
On Wednesday, the Senate approved a measure proposed by Schumer and Sens. Sherrod Brown, D-Ohio, and Robert Casey, D-Pa., to grant $100 million in funding to nonprofit groups that help borrowers avoid foreclosure. The money will be used for foreclosure prevention counseling and allow nonprofits to negotiate some modified loan agreements or refinancings.
“The nonprofits simply do not have the resources to deal with this crisis,” Schumer said in a statement.
Robert Schroeder is a reporter for MarketWatch in Washington.
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