Paulson Wants Stronger Oversight of Mortgage Industry

The meltdown in mortgage and credit markets first started with problems with "subprime" mortgages made to people with tarnished credit histories or low incomes. These borrowers were especially clobbered when the housing slump dragged down home prices and mortgage rates rose. Home foreclosures and late payments skyrocketed as these borrowers found it increasing difficult -- if not impossible -- to afford their monthly mortgage payments. Easy credit during the housing boom allowed people to get into homes that they otherwise couldn't afford. Eventually problems spread from the subprime market to a broader array of more creditworthy borrowers.

"The turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into early 2007," the president's working group concluded. "But the loosening of credit standards and terms in the subprime market was symptomatic of a much broader erosion of market discipline on the standards and terms of loans to households and businesses," the group said.

Paulson said market difficulties -- like the one currently being endured -- often expose weaknesses that can be overcome with experience.

"That experience often comes from lesson learned from prior challenges and prior mistakes," he said.