WASHINGTON (Reuters) - U.S. Treasury Secretary Henry Paulson, convinced individual workouts will not solve a worsening mortgage crisis, is pressing the industry to help large groups of borrowers qualify for more affordable loans.
(Corrects day of interview publication to Wednesday)
WASHINGTON (Reuters) - U.S. Treasury Secretary Henry Paulson, convinced individual workouts will not solve a worsening mortgage crisis, is pressing the industry to help large groups of borrowers qualify for more affordable loans.
In an interview with the Wall Street Journal published on Wednesday, Paulson said he was "aggressively encouraging" the mortgage servicers who collect payments from borrowers to develop new criteria that would allow large numbers of borrowers to qualify for mortgages with better terms.
This is a shift from Paulson's previous strategy of encouraging the industry to work individually with borrowers.
!ADVERTISEMENT!He told the Journal he is expecting a wave of mortgage defaults next year, adding:
"We're never going to be able to process the number of workouts and modifications that are going to be necessary doing it just sort of one-off ... I've talked to enough people now to know there's no way that's going to work."
The change comes as a Treasury-organized alliance of mortgage servicers, lenders, investors and counselors called Hope Now began sending out 300,000 letters to at-risk borrowers this week to offer them individual help to avoid default.
A Treasury spokesperson was not immediately available to comment on the shift.
Paulson said the number of potential U.S. home-loan defaults "will be significantly bigger" in 2008 than in 2007.
"The nature of the problem will be significantly bigger next year because 2006 (mortgages) had lower underwriting standards, no amortization, and no down payments," he said, adding: "We'll watch carefully mortgages that will be reset."
A large number of subprime mortgages, which are made to borrowers with poor credit histories, had low, interest-only "teaser" rates that reset after two years to higher rates as amortization starts, causing a jump in monthly payments.
Paulson's comments added to financial market worries that the U.S. housing market will deteriorate further, causing more credit losses and sapping consumers' willingness to spend.
(Reporting by David Lawder in Washington and Masayuki Kitano in Tokyo; Editing by James Dalgleish)
