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Paul Kiesel
Paul Kiesel
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Treasury Secretary Paulson: Foreclosures are “Not Preventable”

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Treasury Secretary Henry Paulson said Tuesday that many homes cannot be saved from foreclosure and that, “There is little public policymakers can, or should, do to compensate for untenable financial decisions,” (Associated Press, 7/8/08).

However, Paulson has been touting the Hope Now program, which is designed to help prevent as many foreclosures as possible or in Paulson’s prior statement “compensate for untenable financial decisions,” for months and has been basically bragging about its success rate of keeping people in their homes (which is debateable).

According to the AP, “The administration has been working with the Hope Now alliance, an industry group trying to coordinate a response to the mortgage crisis, to encourage lenders to work out loan modifications or refinancings for people that will be able to afford the new terms and can keep making payments.”

But wait, didn’t Paulson say that many homes (many, let’s assume, meaning a majority) cannot be saved from foreclosure and that policymakers should not be trying to come up with relief or compensation for poorly written loans that were flooded throughout the mortgage market over the last five years?

Paulson’s contradictory or “doublespeak” statements from the last four months, however, are not the problem, that’s just an inexorable mind-set that believes Hope Now is the only and best solution to combatting foreclosures; and a blatant refusal to come up with anything better to prevent foreclosures or to adapt to market turbulence. The real problem is that the rules that were in place at the beginning of this subprime boom and its subsequent bust were very grey and allowed for a lot of deregulated and insidious lending practices to take place; the same rules that were written into law by former policymakers like Newt Gingrinch (Home Ownership and Equity Protection Act of 1994) and Phil Gramm (Commodity Futures Modernization Act of 2000).

And now Paulson suggests that policymakers “should not” help fix the foreclosure crisis that they technically helped start or allowed to take place. This is a complete deflection of accountability and its mainly being placed on homeowners who were cajoled into bad loans, loans that mortgage lenders were able to write because of the rules set by policymakers. This is the problem.

It is not clear if Paulson would change his attitude towards the foreclosure situation if (and likely when) it gets worse after the next round of interest rate resets take place next month and in September. Either way, the Treasury Secretary has made it clear to homeowners: If Hope Now doesn’t work for you (and for many it hasn’t), you’re on your own.