From the Feds

US Treasury Secretary Henry Paulson Jr., called on mortgage lenders and their affiliates to move more quickly to help struggling borrowers avoid foreclosures on their homes.

In a speech this morning at Georgetown Law Center, Paulson noted that an industry group is already working on ways to intervene with troubled borrowers before they get too far behind in their mortgage payments.

But, he added, "We have an immediate need to see more loan modifications and refinancing and other flexibility. For many families, this will be the only viable solution. The current process is not working well. This is not about finger pointing; it is about putting an aggressive plan together and moving forward."

Interestingly, Paulson said the foreclosure problems are not limited to the subprime mortgage sector. "The number of homeowners having trouble making payments on prime mortgages is also increasing," he noted.

Paulson's urgency is driven by his concern that problems in the housing market could infect the broader US economy. "The housing decline is still unfolding and I view it as the most significant current risk to our economy," he said. "The longer housing prices remain stagnant or fall, the greater the penalty to our future economic growth."

Indeed, to underscore Paulson's concern, Federal Reserve Bank chairman Ben Bernanke said in a speech Monday night that housing markets are likely to remain slow for some time, though he said it was too earlier to determine if that would inhibit economic growth.

"The further contraction in housing is likely to be a significant drag on growth in the current quarter and through early next year," he said. "However, it remains too early to assess the extent to which household and business spending will be affected by the weakness in housing and the tightening in credit conditions."