Paulson:Can work with House FHA bill
WASHINGTON (Reuters) - U.S. Treasury Secretary Henry Paulson said on Thursday he likes parts of a plan backed by Democratic lawmakers to expand a federal mortgage guarantee program and can envision a compromise taking shape.
At issue is a bill that would expand the Federal Housing Administration program so it can catch troubled loans headed toward foreclosure once the lender has erased some of the loan amount.
"We are behind the objectives. We like some parts of it better than others and we have not issued a veto threat," Paulson said in an interview with Reuters, referring to legislation sponsored by Rep. Barney Frank, chairman of the U.S. House of Representatives' Financial Services Committee and a Massachusetts Democrat.
Paulson also said he was "cautiously optimistic" that lawmakers and the Bush administration will hammer out legislation to create a new regulator for Fannie Mae and Freddie Mac, the congressionally chartered housing finance companies.
Last week, Paulson sat down with the Democratic and Republican leaders of the Senate Banking Committee and the top executives from Fannie and Freddie to discuss regulatory reform legislation.
"It was a good meeting," Paulson said. "There continues to be positive momentum and activity after that meeting."
A month ago Paulson helped broker a deal that allows Fannie Mae and Freddie Mac to expand their mortgage holdings, helping a housing finance sector constricted by a wave of failing loans. In exchange for greater investment freedom, the two companies agreed to raise more capital.
For years, the Bush administration has warned that mortgage assets are dangerously concentrated in Fannie Mae and Freddie Mac's roughly $1.4 trillion investment portfolios. Still, Paulson has said the current mortgage crisis calls for extraordinary measures and that compromise is a watchword as policy-makers try to stabilize the housing sector.
"You get few things done in Washington if you are not willing to compromise and unless you understand the other side's objectives," he said.
FOCUS ON FHA
Compromise is key for the lawmakers and policy-makers who see virtue in transforming the FHA from the homebuyer-aid program of its origin into a government backstop for sliding loans. By guaranteeing a borrower's monthly payments, the FHA helps homebuyers win better loan terms.
Also on Thursday, Frank's panel began to draft legislation that could give the FHA, the government's largest homeowner aid program, up to $300 billion in new financing power. Frank's panel is expected to resume its work next Wednesday.
Paulson noted the Bush administration had already relaxed some FHA rules so the program can soak up more troubled loans, but made clear it was also open to Frank's plan.
"There are not huge differences," he said.
Paulson, who has warned repeatedly in recent months against plans that could bail out housing speculators, said that many sweeping plans for government intervention have been dropped, and more sensible plans remain.
"If I was having this discussion a month ago, I would have started off by saying that a number of ideas on housing (would do) more harm than good," he said. "I don't have to make that point because I think most of those ideas have died of their own weight or, if they have not, they will."
Paulson said that he could back a targeted program to help borrowers who are able to make monthly housing payments but not a plan that simply tries to curtail foreclosures.
"When you look at the number of people who want to stay in their homes and can realistically afford to stay in their homes, we are talking about several hundred thousand people max," he said. "Even in a good year when housing prices were skyrocketing, there were 650,000 foreclosures in the U.S."
(Editing by Leslie Adler)
