ABC News Exclusive: Transcript of Betsy Stark's Interview With Treasury Secretary Henry Paulson

Nov. 30, 2007— -- Below is the excerpted transcript of Treasury Secretary Henry Paulson's interview with ABC's Betsy Stark, Friday, Nov. 30, for "World News With Charles Gibson."

Betsy Stark: How confident are you that there will be an agreement between the administration and the mortgage industry to freeze mortgage rates for some subprime borrowers?

Henry Paulson: Betsy, I'm optimistic we'll have an agreement soon. And this is a very important initiative and it's something that the mortgage industry very much wants to do.

Stark: Is this a government bail-out?

Paulson: No, it certainly isn't. There's no government money in this.

Mortgage foreclosures are not good for lenders and for investors. It's just not a good thing. And they will always do everything they can to avoid foreclosure if they're able to do so. And so what we're doing is bringing people together to help avoid foreclosures.

Stark: Why this more proactive intervention now?

Paulson: If there was ever a role for government, Betsy, it's to help facilitate a solution when innovation has outrun the private sector's ability to deal with it. And there's been a lot of innovation and complexity in the mortgage market and we need to do everything we can to help get the industry ready to meet the growing number of resets that are going to be coming in the sub-prime mortgage market.

Stark: What can't the industry accomplish without the government?

Paulson: I think industry is accomplishing this. Remember, the government's role is playing a facilitator here.

The mortgage industry wants to and needs to be able to come up with a way to help those sub prime mortgage borrowers who are facing resets that won't be affordable for them.

Now, there are going to be some sub prime mortgage borrowers ? a matter of fact, many ? that aren't going to have a problem. And, Betsy, there are going to be some that we're not able to help. Maybe they didn't make a down payment. They don't have the ability to afford any reasonable mortgage.

So we're focused on those in the center ? the middle group ? that are going to have a problem meeting their payment, but it's in the industry's interest to come up with a solution to help them stay in their homes."

Stark: Are we risking recession without this coordinated government action?

Paulson: The way I look at foreclosures are, foreclosures are not only harmful to those that lose their homes, but harmful for neighborhoods and communities. They lead to higher crime rates, lower property values. I've said for some time that housing is the biggest risk that we have in our economy. So we need to do everything we can to avoid foreclosures not only for those who are losing their homes, but for the good of the communities and the overall economy.

Stark:: Is this entirely voluntary? Any money changing hands?

Paulson: There's no money changing hands. This is voluntary. This is a case of the industry coming together to deal with complexity. And that is the issue we've been dealing with. We have a situation where the firm that is collecting the mortgage payment is often doing so on behalf of a group of owners that may be spread all around the world. And the industry needs help to get together to figure out how to deal with this complexity and cope with this wave of resets that is coming in a greater volume next year.

Stark: What's the main mission?

Paulson: The main mission ? is first of all, remember, this is not just a few firms. This is industrywide. And so the main mission is to get the industry to come together broadly to deal with a coming wave of resets for sub prime mortgage holders and to do so in a way to keep those that have got the capability of owning a home in their home and avoid avoidable foreclosures.

Stark: How do you determine who's eligible and who's not?

Paulson: That is what you will find, Betsy, when this is announced. And I'm leaving this to the industry.

And again, what I said is there are going to be plenty of sub prime mortgage holders who are going to have no problem. This is not for them.

There will be some other sub prime mortgage holders who, regrettably, won't have the financial capability to own a home.

There will be another group ? a significant group ? in the middle that have got the capability to own a home, will need some help. It's going to be in the investors' and their lenders' best interest to help them stay in the home.

What the government has done here is help bring these people together to fashion an industrywide solution to deal with complexity that, without help, would make this a difficult problem to solve.

Stark: Is it fair to people who don't qualify but would love a moratorium of their own?

Paulson: This is not a government subsidy that we're talking about here. This is something that the industry will do where it makes sense. And they would ordinarily be doing.

Let's step back a bit. When a local lender ? when a bank ? made a loan to a homeowner in the community, if the homeowner had a problem he would go to the bank and would work something out if it made sense to work something out. And often it did. It was in the lenders best interest and it was in the homeowners best interest and they worked something out.

We now have a new system for financing mortgages ? it's called securitization. And as I said, we have great complexity because the firm that is often collecting the mortgage payment is very different; doing it on behalf of owners that are spread around the world.

And so I see this program is solving some of that complexity ? helping the industry get together and do something on an industrywide basis that's going to avoid foreclosures that are needless foreclosures."

Stark: Do you worry that this will reward people who made bad choices?

Paulson: My concern, Betsy, is keeping people in their homes when they've got the capability to own a home. And that is not only in that family's best interest, it's in the neighborhood's interest, the community's interest and the country's interest.

Stark: How much is this about the reassuring the financial markets?

Paulson: I think the financial markets will take some comfort in the fact that this Gordian knot is being untied. That the complexity that has crept into our mortgage origination process is going to be ? that the mortgage industry is going to come together to come up with solutions to deal with some of the problems created by the complexity.

Stark: So it's a single solution instead of a myriad of solutions from the players in the market?

Paulson: The beauty of it as I see it is the government playing a role a facilitating role in bringing together servicers and lenders representing the big part of the industry so that they can work together to come up with a common solution that will help many, many homeowners who are going to be facing a problem meeting their mortgage payments.

Betsy: Is it too late for some people who would qualify but who have already lost their home?

Paulson: Again, we're moving as fast as we can move. We believe that the biggest issue is gonna be beginning next year when the number of resets is going to be increasing dramatically. And we're doing everything we can to deal with a complex problem and help the industry come together in a way which is going to be good for homeowners, communities and the economy overall.

Stark: When?

Paulson: We're going to look for a final deal soon, and I'm hoping its next week.