Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson held a press conference last week to discuss the Bush Administration’s current objectives to aid struggling homeowners in an effort to stave-off foreclosure. While I love Jackson’s efforts to increase FHA lending limits and his support of the FHA Secure initiative, Paulson’s “big-plan” or his “hastily conceived and problematic solution,” as Barron’s described it, to freeze interest rates on sub-prime mortgage loans to avoid a spike in home foreclosures needs to be put up on the drawing board a few more times.

I struggle with what can truly be accomplish with this plan, as it is presented today, that won’t come back to haunt us down the road when the Note modification comes due. Why does the government even need to get involved? I’ve heard it’s due to a breakdown in communication with homeowners not knowing that their bank is interested in helping out with a possible modification. Wow, are we being serious here? Not everyone should be awarded a modification or “freeze” of their interest rate and responsibilities in the first place. Without question, there are some cases that do need special attention-if the homeowner takes the initiative to investigate all their possible options. The initiative would at least show that the homeowner has motivation to stay in the property now and in the future.

What would happen if we weren’t in an election season? This is such a great time for both sides of the aisle to throw stones and come up with their plan to save the universe. The only problem with that sentiment is that the “known universe” does not need to be saved! The nation, and more specifically our leaders, should focus on the long term issues and avoid such emphasis on short term problems that will inevitably work themselves out. Yes, there will be increases in foreclosures for a fraction of the overall outstanding mortgages written over the last 5 years (give or take). The normal market will work this out. If mortgage rates are frozen for any specified period of time, isn’t that simply delaying the inevitable problem that will rear its ugly head down the road when the modification is expired? What about the natural correction that benefits the affordability factors? When more homes are on the market prices go down and the public benefits from this, then the market inevitably swings the other way.

There is so much mud being thrown here and the issue of foreclosures related to sub-prime ARM lending is being exacerbated by the political process and the media. This needs to be worked out bank-by-bank, borrower-by-borrower. Borrowers that have a desire to stay in their homes, which are abundant in our society, will make an effort to work out terms with their bank or mortgage-servicer. This group of homeowners has multiple options that need to naturally be worked out by selling the home, refinancing, special circumstances Note modifications, etc.

Yes, foreclosure is an option, maybe not pretty, but an option nonetheless, and there is not indication, by any broad measures, that Paulson’s plan to delay the inevitable is good for the homeowner, the economy, or the real estate market in general.