WASHINGTON — Treasury Secretary Henry Paulson said Wednesday that the turbulence that has hit financial markets will take some time to be resolved, especially in the area of subprime mortgages.
Paulson, speaking to officials of some of the country's biggest financial firms, said the Bush administration was looking for their help in making sure subprime homeowners get assistance in dealing with sharply rising mortgage payments as their initial low adjustable rate mortgages now reset to higher levels.
"We have been experiencing market turbulence and as I have said for awhile, it is going to take some time to work its way out,'' Paulson told the finance officials at a meeting at the Treasury Department. "We are going to work our way through this, in some markets more quickly than others.''
Paulson said that "we are already seeing signs of improvements in a number of markets that have been experiencing stress.''
But he said it was going to "take longer to work through the problems in the subprime market,'' noting that there are a number of loans in this market that are scheduled to reset at sharply higher mortgage payments over the next two years.
Estimates are that 2 million homeowners will be facing steep increases in their mortgage payments over the next two years, putting many of them at risk of losing their homes. The session Wednesday was called as a follow-up to efforts announced by President Bush on Aug. 31 to provide more government help to borrowers struggling to cope with the higher mortgage payments.
Among those attending the meeting with Paulson was Angelo Mozilo, the chairman of mortgage giant Countrywide Financial Corp., which announced last week that it is facing the prospect of having to lay off 20 percent of its work force as it struggles with rising loan defaults.
Other companies represented were Wells Fargo & Co., CitiMortgage Inc. and JP Morgan Chase.
Wall Street has been on a rollercoaster ride over the past several weeks as investors have worried about mounting loan losses that began in the market for subprime loans — mortgages made to people with weak credit histories — but which have now spread to other types of credit.
The financial market turmoil has triggered steep declines in stock prices and prompted the Federal Reserve to signal that it stood ready to cut interest rates if necessary to keep the unfolding credit crunch from the country into a full-blown recession.
The government reported last week that businesses trimmed payrolls by 4,000 workers in August, the first monthly job losses in four years.
Paulson told the executives that in a positive sign, all the market turmoil is occurring against "the backdrop of a strong economy. And unlike the periods of financial turbulence I have witnessed over many years, this turbulence wasn't precipitated by problems in the real economy.''
He said the issue the administration wanted to discuss with the executives was how they could work together to make sure as many homeowners as possible are protected against losing their homes through such efforts as allowing them to refinance adjustable-rate loans into more affordable fixed-rate loans.
Bush, in his August proposal, expanded in some limited cases the eligibility requirements for refinancing loans guaranteed by the Federal Housing Administration under a new program to be called FHA Secure.
Critics, however, said the Bush proposals offered only modest relief that would help perhaps 80,000 current homeowners whose mortgages are resetting.
That would be a small fraction of the 2 million adjustable rate mortgages scheduled to reset by the end of 2008. Those homeowners are facing a payment shock as their loans move from low "teaser'' rates to higher interest rates that in some cases will mean an extra $250 to $300 in higher monthly payments on a typical $1,200 monthly mortgage.
Alphonso Jackson, head of the Department of Housing and Urban Development, told the finance executives that it was important that they work with the government to make sure that American dream of homeownership does not turn into a nightmare.
"Around this table are the people who can make a difference,'' he said.
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