Paulson: Housing aid first, economic stimulus a close second

A housing focus

Paulson said the administration's mortgage assistance plan, called HOPE NOW, would remain its focus, even as it begins to weigh fiscal stimulus options in light of the slowing U.S. economy. Numerous recent economic data points, including December 2007's very low 18,000 jobs created, suggest that the U.S. economy is growing at a very low rate; some economists argue that the economy has already entered a recession.

"Let me be clear that no single policy or action will undo the excesses of the last few years," Paulson said, Reuters reported. He added that administration officials "recognize the risks we face" and will try to keep the economy "as strong as possible as we weather this housing correction," Reuters reported.

The administration's HOPE NOW mortgage assistance plan has drawn criticism from Congressional representatives, particularly from Democrats. Democrats say it does not help moderate-income borrowers enough, has a too-high credit rating cut-off, and fails to reform other mortgage lending practices that these Congressional members say take advantage of potential borrowers, among other criticisms. The HOPE NOW plan, while not stalled in Congress, has not received the immediate action that the administration had sought.

Paulson: Congress should act

Paulson Monday underscored the need for Congress to act on the administration's assistance package, saying it should speed-up reforms that would enable government-sponsored enterprises such as Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) to temporarily package jumbo mortgages into securities. The reforms would enable jumbo mortgages to achieve "conforming" status, which will lower interest rates banks charge for these mortgages and also free-up capital for new mortgages when banks sell these loans to FNM and FRE.

Economic Analysis: As Secretary Paulson's speech suggested, looked for the Bush Administration to maintain its focus on getting the housing sector assistance package passed, even as it composes a fiscal stimulus package proposal. With slow growth in-place and a recession possible, the administration will try to jump-start the economy to avert a costly political environment: a recession in an election year.

Historically, American voters blame the party in power in the White House for a recession, regardless of what factors are ultimately responsible. Hence, a recession would hurt the Republican Party nominee's chance of winning the presidency in 2008: the Bush Administration will do what it's capable of to avert that scenario.