Paulson Sees 'No Evidence' Housing Decline Is Ending

By Kevin Carmichael
Bloomberg
Jan. 14, 2008

Jan. 8 (Bloomberg) -- Treasury Secretary Henry Paulson said the housing decline will continue, and a program aimed at heading off a wave of foreclosures may need to be expanded beyond subprime borrowers.

``There is no evidence it is bottoming,'' Paulson today said of the housing decline on CNBC television during a trip to New York. ``The evidence would be that it has further to run.''

The Treasury chief indicated the outlook may prompt an expansion of the plan Bush administration officials brokered with mortgage lenders last month. The initiative is aimed at helping as many as 1.2 million Americans keep their homes by making it easier to negotiate affordable loans and freezing some adjustable-rate mortgages at current rates.

``We have this wave of resets coming,'' Paulson said, referring to the almost 2 million of adjustable-rate loans forecast to jump to higher rates in the coming two years. ``One thing we will consider is maybe expanding this beyond subprime borrowers to other borrowers.''

The number of Americans signing contracts to buy previously owned homes fell more than forecast in November, signaling further deterioration in housing, an industry report showed today. Sales of new homes fell to the lowest level in 12 years in November.

In Washington, President George W. Bush acknowledged today ``new signals that should cause concern.''

``And one of the signals is the fact that the housing market is soft, and it's going to take a while to work through the downturn,'' Bush said.

Industry Support

The New York-based American Securitization Forum, which represented investors in the talks that led to the housing plan, said it was open to including prime and other types of loans in the program.

``To the extent that servicers can develop and apply systematic approaches to assist them in their efforts to identify appropriate loss mitigation outcomes for adjustable rate mortgages other than subprime, we support those efforts,'' George Miller, the group's executive director, said in a statement.

Paulson, the former head of Goldman Sachs Group Inc., said ``there's not a lot of evidence'' that the decline in housing was spreading to the overall economy. He reiterated that President George W. Bush hasn't decided if a stimulus package is necessary to avoid a recession.

Headwinds

``We are facing some strong headwinds,'' Paulson said. ``The president is thinking through options.''

Former Treasury Secretary Lawrence Summers and Harvard University's Martin Feldstein are among the economists saying a stimulus package is needed to buttress the economy. The last U.S. recession occurred in 2001, Bush's first year in office.

Feldstein, appearing on the same program as Paulson today, said growth is in ``a very sharp decline,'' and said the government should consider a fiscal stimulus, including tax cuts, ``as quickly as possible.''

Paulson repeated that he thinks a ``strong dollar'' is in the nation's best interest, and that its value ultimately reflects the economy, which is continuing to grow.

``It comes from my mind, my heart, my experience -- a strong dollar is in the nation's best interest,'' Paulson said.

Paulson, who visited China for a fifth time as Treasury secretary in December, said the cabinet-level talks he organized between Chinese and U.S. officials last year are paying off, citing improved safety measures on Chinese exports and a stronger yuan.

``I am satisfied that we are achieving results through the Strategic Economic Dialogue,'' Paulson said. ``They've clearly been appreciating the currency,'' though not enough, Paulson said.