GOIH Capital Markets: Housing Industry Declining--Paulson Says Housing Is LikelyTo Adversely Affect Economy.

Paulson Says Housing Is LikelyTo Adversely Affect Economy
Treasury Secretary EndorsesStandards for Mortgage Brokers,Expects More Declines in Housing Starts

By DAMIAN PALETTAOctober 16, 2007 12:47 p.m.
WASHINGTON -- U.S. Treasury Secretary Henry Paulson offered a sobering view Tuesday of the pressure the housing market was having across the country, saying the decline stood "as the most significant current risk to our economy."
Mr. Paulson even acknowledged that problems in credit, mortgage, and housing markets were much more severe than anticipated.

"The ongoing housing correction is not ending as quickly as it might have appeared late last year," he said in a speech to Georgetown University Law Center, according to prepared remarks. "And it now looks like it will continue to adversely impact our economy, our capital markets, and many homeowners for some time yet." (Read the full text of Paulson's remarks.)
Housing prices have flattened or fallen in many parts of the country, as homeowners with adjustable rate prime and subprime mortgages have found it increasingly hard to make their monthly payments. The market's problems have impacted everyone from low-income homeowners to huge Wall Street banks.

Mr. Paulson and his senior aides have found themselves on the front lines of the effort to both stabilize jittery credit markets and help borrowers prevent foreclosure, a difficult tight rope walk as they try to prevent "bailing out" risky investments.
Months ago, Mr. Paulson and other Treasury officials sought to downplay the mortgage market's problems and its possible contagion. Tuesday, Mr. Paulson said problems were likely to persist.

"The problem today is not limited to subprime mortgages as the number of homeowners having trouble making payments on prime mortgages is also increasing," he said.
Mr. Paulson said the housing correction was having a "real impact on our economy," citing how annual housing starts have fallen off more than 40% since early 2006. "It looked like housing construction had reached a bottom in the first half of this year, but starts have declined again since June and data on permit applications and inventories of unsold homes suggest further declines lie ahead," he said.

The Bush administration has historically favored market discipline as a major motivating force, but Mr. Paulson said Tuesday that an enhanced regulatory role was likely necessary to prevent problems from reoccurring.
He said policy makers "need to make some changes in our laws and rules in order to prevent some of the excesses and abuses of the last few years from happening again."