Paulson: Many foreclosures "not preventable"

It's not usually news when someone states an obvious truth, but if you haven't noticed, stating the obvious is often considered risky behavior in Washington.

That said, I felt this worth of passing along, from the AP: " 'Many of today's unusually high number of foreclosures are not preventable,' Treasury Secretary Henry Paulson (pictured) said in prepared remarks to a mortgage-lending forum meeting in Arlington, Va. 'There is little public policymakers can, or should, do to compensate for untenable financial decisions.' "

More: "Paulson said that there were 1.5 million home foreclosures started in 2007. He said some economists estimate there will be about 2.5 million foreclosures started this year."

Relatedly, the head of the FHA today warned Congress not to "dump bad loans on us." From Bloomberg News: "Federal Housing Administration Commissioner Brian Montgomery criticized legislation being considered by the Senate this week that would expand the agency's role in curbing foreclosures."

More: " 'Some in Congress want to turn it into a mega-mortgage agency, in effect federalizing the mortgage market,' Montgomery said at a conference today hosted by the Federal Deposit Insurance Corp. in Arlington, Va. 'Some want to dump bad loans on us, many that never should have been made in the first place.' "

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.
Photo credit: Getty Images

Comments

[Cal]

The ones making the most sense are the ones not voted into office.

To quote Ken Brockman: "I've said it before and I will say it again, Democracy simply doesn't work."

[flip]

Paulson makes no sense. Who says that bad decisions are not preventable? Are there cases where someone has a castrophic illness or some other case of bad luck? Of course. That is certainly not preventable. Being enticed into a bad loan or throwing common sense out of the window is preventable. Money does not grow on trees...but don't tell Bush or Paulson, because that's what they seem to think. All of a suddent, these free-market, no-government/watchdog regulation guys are looking for excuses. Let the chips fall where they may. If banks, builders and large corporations go under, so be it. If the economy suffers, so be it. That will have consequences for everyone. But how else will people learn?

[pugtv]

ShockG,
I've decided to help you pursue your agenda of misinformation. I've got your back.

Everyone else,
Paulson was just kidding. Buy a home. It's a great investment. =)

[Nick]

Common... someone's gotta point out the obvious humor in the FHA being worried about Congress dumping bad loans on them. This is the same agency which is giving 100% (after DPA programs) LTV loans to knife catchers, as I write this, which are insured by the FHA. The same agency which is single-handedly orchestrating the largest backdoor bailout of the mortgage industry, and will probably be responsible (even without any additional directives) for the largest volume of losses offloaded to the taxpayers. The agency backing all the ludicrous loans being currently given with terms no private bank, or even GSE, would touch. And they are worried about insuring other bad loans?

This sounds like preparatory rhetoric for blaming all their losses which will be shouldered by taxpayers on Congress, when it's their idiotic current lending programs creating them. It's like a Wile E. Coyote moment, when he realizes the FHA is the only idiot left running around naked throwing away government money, going "oh bleep, uh, look over there!"

[CD]

Same time last year Paulson told us: Subprime is under control, everything is good, fundamentals are good.
What is he not telling us now ?That our financial portfolios will go by half, That the next shoe to drop is commercial real estate, credit cards, a few more banks to disappear, and also that millions of people own homes that are worth half that what they paid for.Will they walk and rent , creating more havoc, probably. Jobs are disappearing in Ca , the gold rush is over, people will go where the jobs are, that is why renting is the right thing to do.

[Cal]

Nick,

The FHA is fighting a lot of these things tooth and nail, DPA (which they stopped and the DPA companies went to court to get reinstated) and the new proposals. Its the elected officials writing the law putting the onus on the FHA who are to blame, the FHA knows how to underwrite loans but the politicians want them to write more and more risky loans under terms the politicians (not the underwriters who know what they are doing) define. Your vitrol is misdirected.

[E]

Hey! Someones finally catching on!

[LA]

There's a glimmer of hope here. Finally, some lemmings are breaking away from the pack! Too bad the cliff is so near...

[Jeremy R]

"Paulson makes no sense. Who says that bad decisions are not preventable? "

Flip.

Paulson is merely saying that government should try to save those who have the incomes to support their mortgage principle, and to forget about keeping people in homes they simply cannot afford. Helping a family keep a 1 million dollar home on only 40k/yr income is not advisable according to him, and I agree.

[Roger Moore]

@flip

Yes, it's true that mistakes of judgment are correctable, but only before they're finalized. Once the dumb decision is made, it's too late. The inevitable consequences are locked in.

In this case, there are millions of people with home loans they haven't a prayer of paying back. Paulson is just acknowledging that those people have already made their mistake of judgment, and it's too late to halt the consequences.

[long time renter]

Wow - does this mean the powers that be are back peddling on the idea of a housing bailout?

It's almost as if Paulson and a few other power brokers have had a moment of epithany (or perhaps a sneak peak at the true book value of mortgages circa 04-06) and said "no way Jose"

And I thought this election year was going to be so much more interesting

[Valley Observer]

Most of the foreclosures would have been prevented by ordinary underwriting standards of the sort that used to be common and are being adopted again. The lenders thought that because other people would end up with the mortgages in the form of securities, they bore no risk so the sky was the limit and the commissions and fees would come rolling in forever, while regulators looked the other way. The losers are not only the underwater borrowers but also lender employees not on the commission gravy train who held company stock for their retirement.

[CD]

From implode.com : HOUSE PANEL SETS HEARING ON THE GROWING SYSTEMIC RISK IN THE FINANCIAL SECTOR.
Isn't it a bit late for that. Nouriel Roubini has been warning those guys for 2 years.
Buy a gun, load up the car and head North ?

[Nick]

If it's indeed the elected officials who are forcing the FHA to insure bad loans as it now is doing, I would expect the rhetoric to be more frequent, and more along the lines of "Congress is forcing us as we speak to offload hundreds of billions of bad debt onto the US taxpayers; mail your Congressperson". The fact that the FHA officials are not protesting loudly and clearly enough places some of the blame on them. There's plenty of blame to go around in the gross debacle which is the current FHA 100% LTV "100% default" loan program.

[shockg]

ShockG,
I've decided to help you pursue your agenda of misinformation. I've got your back.

Everyone else,
Paulson was just kidding. Buy a home. It's a great investment. =)

Posted by: pugtv | July 08, 2008 at 02:45 PM

Hey Pug, You sure do spend alot of time and energy on housing blogs for someone who is a prudent speculator.....uh...i mean prudent renter. If housing is a poor investment why do you ultimately want to own a home?? LOL. Only a fool would sell their primary residence if they didnt need to. GREED GREED GREED.

[Robert in Palm Springs]

In a way, Paulson is right: foreclosures on many bad loans are not preventable. What was preventable was making the loans in the first place. Now, of course, it is too late.

What is also too late is saving the US financial system. First reported in Der Spiegel in Germany and later in the London Telegraph last week (and hardly reported at all in the USA), is the fact that the IMF has ruled that a Financial Sector Assessment of the entire US financial system must be carried out. This means that the FED, US investment banks, SEC, mortgage banks, and hedge funds must hand over confidential documents to the IMF. This review will be completed in 2010. What is astonishing is that Bush has kept the IMF from doing this for 7 years and only relented because they cannot finish and publish their findings until he is out of office.

The good news is that this will set the stage for recovery. The bad news is that had this been done years ago the entire worldwide financial crisis could have been avoided. Many nations have undergone this painful process but never the US. Now it is our turn to suck it up.

In the American press you see articles like this where Paulson is acting like he is in charge. He is not in charge and neither is the Fed. They are the laughing stock of the world. Everything they do will be temporary until the IMF and the world orders the US to fix its own mess. This will not be pretty.

The blatant intervention of the Plunge Protection Team in the stock market, the Bear Sterns rescue by the FED and now the mortgage bailout by Congress are all confirmation that our government is clueless and only interested in protecting big business. All these efforts will fail and we will have the worst recession/depression since the 1930s. It is too late to stop it. The sad part is that it could have been prevented. We have no one to blame but ourselves.

In terms or real estate, the end is nowhere in sight because the larger problem of the entire system being broken will not facilitate a rebound in real estate. So be patient and be choosy. This is going to take a very long time to fix if it can be fixed at all.

[Tom Lindmark]

To quote Ken Brockman: "I've said it before and I will say it again, Democracy simply doesn't work."

Posted by: Cal | July 08, 2008 at 02:07 PM

So Cal, what kind of dictatorship do you have planned?

[Cal]

Tom Lindmark : "So Cal, what kind of dictatorship do you have planned?"

The last thing someone like me needs is absolute power because I am just the kind of person to use it. Pol pot and Stalin got nothing on me. About the only positive thing to come from a Cal regime would be that I guarantee there would be no more slow people in the fast lane.

p.s. I can't believe I left of the T in KenT Brockman's name. I think it was anti-Cal forces at work. They will be taken care of soon.

[Syscom3]

Just why do we have to hand over documents to the IMF?

Were not borrowing from them.

[pugtv]

ShockG,

I love this blog. I openly admit I am greedy.

I also want to help you spread misinformation to satisfy your greed. You tell me how best to do it and I'll do it. =)

[Nick]

To Robert:

Quoting from the IMF's web site, in regards to the FSAP program: "Participation in the program is voluntary." I'd guess your sources are mis-representing the facts if they indeed used terms like "force". Moreover, the idea that a multi-national organization could force a country to do something they didn't want to do has been proven wrong time and time again; look at the UN for hundreds of examples.

I do think the US economy is in deep trouble, and will not be easily fixed, but that doesn't mean I'm going to abandon all logic and start subscribing to the "all-powerful super-national organizations" BS. The US will succeed or fail on its own, regardless of the intentions or desires of any of the powerless globalization entities (UN, IMF, World Bank, World Court, Church of Global Warming, etc.).

[dclogang]

"p.s. I can't believe I left of the T in KenT Brockman's name. I think it was anti-Cal forces at work. They will be taken care of soon."

You now also left off the "F" in.... "OFF". : - )

I'm going to go from townhome renting to House renting. There are a ton of houses going up for rent in the SFV. Yippee!

[jaded]

I'll take Cal over Obama or McCain any day.

[Cal]

dclogang: "You now also left off the "F" in.... "OFF". : - ) "

Again, the Anti-Cal forces have somehow invaded my keyboard. And criticizing a dictator is a sure path to the gulags, tovarich.

jaded: "I'll take Cal over Obama or McCain any day."

Well that ain't saying much but I'll take it!

[Laker]

Jeremy R wrote: "...Paulson is merely saying that government should try to save those who have the incomes to support their mortgage principle, and to forget about keeping people in homes they simply cannot afford. Helping a family keep a 1 million dollar home on only 40k/yr income is not advisable according to him, and I agree...."

Jeremy,
Those who have incomes to support their mortgages do NOT need any help...aka they can support their mortgages....
Those that can't support their mortgages could not be helped unless we have 100% inflation...and should not be helped since it rewards the bad people and punish the good ones.
So anyway you look at it, no government help will help...or need to be given...