Housing Recovery 'Years' Away, Economists Told

ARLINGTON, Va. — Treasury Secretary Henry Paulson told economists Monday that no matter what government does, recovery from the mortgage meltdown is "going to take some time."

Karen Weaver, a managing director at Deutsche Bank, was more direct in speaking to the National Association for Business Economics convention. She predicted recovery would take "years" and that sharply lower home prices were "unavoidable."

Foreclosures will continue at a "pretty heavy level for the next 15 months or so," she said. She displayed charts showing that after the last housing downturn in the early 1990s, home prices in certain markets did not return to their peaks for six, eight or even 11 years.

But Paulson reiterated his position that, as bad as the housing downturn may be, he opposes any government bailout that would reward people who took too many risks.

"Let me be clear: I oppose any bailout," he said. Borrowers "should be accountable for the risks they took."

Paulson said he wants mortgage lenders, servicing companies and credit counselors to continue working together as part of the HOPE Now alliance. That initiative, organized by the Bush administration, helps delinquent mortgage borrowers work out voluntary agreements to lower or extend their payments and avoid foreclosure.

Paulson said such voluntary "workouts" were up 11 percent in January from the previous month, more than double the growth rate of new foreclosure filings.

HOPE Now released statistics showing it has helped more than 1 million borrowers since its launch last fall. Of the borrowers who got workouts, 73 percent were helped to get them back on track after skipping a few payments. The remaining 27 percent were given long-term help, such as lower interest rates.

But critics said the HOPE Now data did not spell out just how much help individuals got. "The numbers reported should provide detail on the nature of those loan adjustments," said John Taylor, president of the National Community Reinvestment Coalition, a homeowners advocacy group. "Failure to provide real information raises real questions about the success of voluntary efforts."

Several key Democrats in Congress are pushing for a much broader, government-funded program to buy up troubled loans and help clean up the mortgage crisis more quickly. The Bush administration has threatened to veto plans that go beyond voluntary workouts.

Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University, said at the conference that most private economists agree with Paulson that voluntary workouts can do some good. But he also agreed that the housing slump will linger.

"Two years — that's a long period," he said, but is a realistic estimate for how much longer prices will fall.

A survey released at the conference showed that 34 percent of the association's members ranked financial-market turmoil from loan defaults as the top threat to the economy over the next two years.

That is up from 18 percent from an August survey, when the No. 1 threat was seen by 20 percent of respondents as terrorism and the conflicts in the Middle East.