ROBERT SIEGEL, host:
Shortly after President Bush made his remarks today, I spoke with Treasury secretary Henry Paulson. Paulson says he is hopeful that the steps the administration is taking will help identify mortgage holders who may have problems and help those with adjustable interest rates that are about to go up.
Secretary HENRY PAULSON (U.S. Treasury Department): I think it can benefit in a number of ways. And one of the things the president announce today was his intent to work with members of the Congress to get legislation passed that will do a way with a perverse aspect of the tax code. And the way the tax code works as this: If I loan you money those proceeds are not taxable. Now, if I forgive the debt, then that's taxable income.
And so, homeowners who, you know, in a worst case who lose their home through foreclosure could get hit with the big tax bill on the cancellation of the mortgage debt, or those that are looking to refinance their mortgage and the bank might be willing to reduce the principle, could get hit with the tax bill. And so, what the president has proposed is a tax provision, which for several years would provide tax relief to those homeowners who in a primary residence need to restructure their mortgage, and so they wouldn't have this tax obstacle.
SIEGEL: I'd like to come back to that proposal in just a moment. But first, I want to ask you about the proposal to - a dwarf to the FHA. Do you agree with the number we've heard a lot this morning, which is that about 80,000 of borrowers might be assisted by the FHA plan?
Sec. PAULSON: Well, I got to say that's a - I think that's one estimate, and we're going continue working with FHA to develop a new product. But remember, there's also going to be new product coming from other sources and the key -and the thing that we're going to begin doing - Alphonso Jackson who's the secretary of HUD and my people at Treasury are going to begin working right away getting together groups of mortgage servicers, getting together those groups that are developing new product, getting together counseling groups not for profits, and start the process as soon as possible. Start right away to begin attempting to identify those homeowners that are facing a problem and identify them in advance so we might be able to contact them in advance and help them refinance.
SIEGEL: But Secretary Paulson, 80,000 sounds a very small number set against the figures we hear of one to two million troubled loans over the next year or two. What to you is a measure of success? How many troubled borrowers get helped and avoid foreclosure for you to say, we did it, we succeeded?
Sec. PAULSON: To me, anyone that we can help stay in a home is success and I want to be as successful as possible and get to as many people as possible. And be aggressive in terms developing new product and pro-active in getting to homeowners who may have problems.
SIEGEL: But you think the homeowners measured into thousands…
Sec. PAULSON: I can't - I cannot go…
SIEGEL: …or the tens of thousands or the hundred of thousands.
Sec. PAULSON: I'm just got to say I don't want to overpromise and underdeliver. We can't make this problem go away, we can't keep everyone in their home, but we sure as heck it can make a big effort to help those who've the got the capability to own a home, refinance and what we're going to do is make a big effort. And to me success is helping as many people as possible.
SIEGEL: You mentioned the tax code change that the president has proposed and you said that refers to a primary residence. I assume that means that the forgiveness of taxes or the ending of that taxation would not affect the income received regarding a second home. Would it be limited to a certain level of mortgage that is - we'd be talking equally about $400,000 jumbo loans and…
Sec. PAULSON: Where going to work this through Congress and I'm sure we will get input from Congress. But the proposal is to deal with residence, to not deal with speculators, but people who owns a primary home, not a second home, and to deal with cancellation of debt in that context.
SIEGEL: Americans have become accustomed in recent years to borrowing against the appreciation of their homes through equity access loans, to make a lot of purchases. Should that form of borrowing continue or expand, or does it ultimately stake too much of our economic growth and rising real estate values?
Sec. PAULSON: Well, let me say this, I don't think it's my job or the government's job to tell anybody how much money they can borrow, what asset they should borrow against. People will from time to time make mistakes. We can't protect everyone against loses. But homeownership is very, very important in this country. And the vast majority of people in this country have a big part of their network tied up in their homes. And so this is an area that we're all focused on. And again, I think, that is why the president was so proactive here in coming up with a program to address this very real problem.
SIEGEL: Secretary Paulson, thank you very much for talking with us today.
Sec. PAULSON: Thank you.