Paulson: Housing Remains Drag on Economy, Markets

Treasury Secretary Henry Paulson warned Tuesday that the U.S. housing correction would continue to hurt the U.S. economy and financial markets for some time and called for assistance for home owners at risk of losing their primary residences.

Paulson, speaking at Georgetown University's law school, said he believed further construction declines lay ahead, but the U.S. economy was healthy and would manage to grow.

Treasury Secretary, Henry Paulson

"But let me be clear, despite strong economic fundamentals, the housing decline is still unfolding and I view it as the most significant current risk to our economy. The longer housing prices remain stagnant or fall, the greater the penalty to our future economic growth," Paulson said.

Calling for a public-private partnership to address the myriad issues brought about by the credit crisis, Paulson identified four primary areas that need to be addressed: Disclosure, origination, predatory lending and liability.

Homeowners should receive a single page at closing that clearly states their financial responsiblity, rather than the "pages and pages of mostly unread boilerplate" documents they are currently required to sign, he said.

He said the origination process should be more streamlined so that borrowers know who to turn to if they fall behind on their mortgages, but cautioned Congress against overregulating the industry.

"This is a difficult balance to achieve because each lending determination is relatively unique based on the difference facts and circumstances associated with each borrower," Paulson said. "Balance is critically important. Congress should proceed with extreme caution so as to avoid cutting off investment flows to the housing market."

He also opposed imposing liability on securitizers and investors, saying this would pose "significant unintended consequences" and could result in denying mortgages to qualified borrowers.

Paulson devoted much of his speecht to railing against the rampant speculation that caused the credit collapse and said he has no interest in bailing out reckeless lenders and speculators. But he said it's important that true victims receive help.

"Foreclosures are costly and painful for homeowners," he said. "They are also costly for mortgage servicers and investors."