U.S. Treasury Secretary Henry Paulson said on Wednesday a recovery in the subprime mortgage market will be slowed by a wave of interest rate resets and urged lenders to help troubled borrowers.
Speaking to mortgage servicing executives at the Treasury, Paulson called on lenders to expand the range of mortgage products to refinance loans made unaffordable by resets.
"Unlike periods of financial turbulence I've witnessed over many years, this turbulence wasn't precipitated by problems in the real economy. This came about as a result of some bad lending practices," Paulson said.
Paulson said turbulence in some markets would be worked out more quickly than others. "The subprime market will take longer than other markets because of a number of these resets taking place over the next 18 months to two years," he said.
He urged the mortgage executives, which included embattled Countrywide Financial Chairman Angelo Mozilo and top managers from Wells Fargo, CitiMorgage, HSBC and JP Morgan Chase, to identify and offer refinancing and other assistance to troubled borrowers facing big rate resets.
He said he was discussing options to expand the availability
of mortgage products for this purpose with the government-sponsored housing enterprises Fannie Mae and Freddie Mac and other mortgage product providers.
However, he did not mention any specifics.
Some lawmakers have called for the government to allow Fannie and Freddie to expand their mortgage investment portfolios to buy more subprime debt, but Paulson has been reluctant.
Paulson said the Bush administration's efforts to provide assistance to financially stressed borrowers was not focused on helping housing speculators caught out by the real estate downturn.
"We're focused on homeowners where it's their primary residence, finding ways to keep them in their home," he added.