Now not time for mortgage bailout: Treasury

U.S. Treasury Undersecretary Robert Steel answers questions during the Reuters Housing Summit in Washington February 21, 2008.

NEW YORK (Reuters) - The U.S. government is right to protect and nurture the housing market during the current crisis, but now is not the time to create a federal backstop for falling property values, a senior Treasury official said on Thursday.

Treasury Undersecretary Robert Steel told the Reuters Housing Summit it is proper for homeownership to hold a special status for policymakers because it is such an overwhelming share of consumer debt and so closely tied to an individual's sense of his own wealth.

"If I default on my credit card debt, no one here knows and it has no affect on your credit card debt. If I am your next-door neighbor and I get foreclosed and thrown out, and the grass goes to heck and the home is boarded up ... that affects you," he said at the Reuters Summit in New York and Washington.

With that in mind, Steel said, the Treasury Department is working to develop programs that aid borrowers who are facing foreclosure, but a government bailout of the housing sector is not now needed.

"I think the strategies that we are working on are the ones that we think are correct for now, and we will continue to evaluate other things and then see where we go," Steel said.

Since October, the Treasury Department has been encouraging the mortgage industry to step up its foreclosure prevention programs through a partnership called Hope Now. In December, that partnership developed a plan to freeze mortgage rates for some troubled borrowers. Earlier this month, it unveiled an effort that would stall foreclosure proceedings on some homeowners.

Pressed on whether the Treasury Department could ever endorse a government bailout of the mortgage industry, Steel said that the current efforts should be given a chance to work.

"If I start talking about what we might do if this happens, if that happens ... We want to stay on our message with what we are trying to do. Right now is a critical time to make sure we are doing as much as we can for Hope Now," he said.

(For summit blog: summitnotebook.reuters.com/)

(Reporting by Patrick Rucker; editing by Phil Berlowitz)