Paulson proposes tax-exempt bonds for mortgage aid
WASHINGTON (AFP) — US Treasury Secretary Henry Paulson proposed Monday to allow local governments to issue tax-exempt bonds to provide funds to help avert a wave of defaults by struggling homeowners.
The proposal, which would require congressional approval, would broaden the ability of cities and other local governments to use proceeds from tax free bonds to help alleviate stress in the mortgage markets.
Paulson, who has been actively working to stave off a crippling wave of home foreclosures from subprime loans, many with adjustable interest rates, to people with weak credit, offered a new proposal that would help states and cities help in refinancing.
He noted that under current law, states and localities may issue tax-exempt bonds only to assist first time homebuyers or homebuyers in designated distressed areas.
"Today, we are proposing to allow state and local governments to temporarily broaden their tax-exempt bond programs to include mortgage refinancings," he said in comments delivered in Washington. "If enacted, this will reduce the cost of innovative mortgage programs and allow these programs to reach more struggling homeowners."
Paulson has also been working with banks to set up a "superfund" to buy up distressed mortgage securities hurting the balance sheets of major finance institutions.
Additionally, he said he was working "to convene servicers and investors so they can develop categories of borrowers eligible for appropriate modifications and refinancings, and an industry-wide solution."
Such a plan could help homeowners on the brink of default to refinance based on a set of benchmarks and standards.
Paulson reiterated that "the housing market downturn is the biggest challenge to our economy."
He said efforts should be made by the mortgage industry, investors and other parties to stave off foreclosures.
"Treasury is aggressively pursuing a comprehensive plan to help as many able homeowners as possible keep their homes," he said. "We began by convening a diverse group of market participants, who represent all segments of the mortgage industry."
