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Obama to tackle housing problem next
A man looks over his belongings after he and his mother were evicted from their foreclosed home in Brighton, Co.
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TEXT OF INTERVIEW
Kai Ryssdal: Robert Gibbs, the president's press secretary, is doing his best to manage the news on the administration's mortgage plan. Gibbs said today -- and here I quote -- "don't set an unreasonable series of expectations based leaks from God only knows where." It'd be pretty tough to have unreasonable expectations, seeing as how it's been the better part of two years now since housing collapsed and nobody's come up with the answer yet.
To help figure out what the president's plan might look like we've called Chris Mayer, he's professor of real estate at Columbia University. Welcome to the program.
Chris Meyers: Hi, Kai.
Ryssdal: Not that we really need it, but refresh our memories as to how bad the housing market is. Is it worse than it was 18 months ago? About the same?
Meyers: Well, we've seen house prices fall more than 20 percent in the last 18 months. And unfortunately things are getting worse, not better.
Ryssdal: Alright. So, the White House came out today and said that next Wednesday the president is going to announce his mortgage and foreclosure relief plan in a speech in Arizona. What do you suspect that might look like?
Meyers: Well, I think we're going to certainly see some significant help to deal with the foreclosure problem. And I think they've talked about providing some payments to people who are facing foreclosure and trying to create a standardized process to do this, both of which are helpful. I think, unfortunately, without legislation there are going to be some additional barriers that they're going to need and I think that they may also call for Congress to help. One proposal that I've put forth -- that was actually cut from the stimulus bill, but I think will eventually come back -- is one that gets rid of any restrictions on foreclosures for servicers and provides a safe harbor for them to modify mortgages.
Ryssdal: This is all a little bit hypothetical, because we won't know what the president says until next Wednesday, but let me get you on the record here about some details that are sort of starting to emerge, some rumors. One, that government might subsidize some losses on the part of lenders if there's some kind of deal worked out. What do you think?
Meyers: I guess I'd really want to know a lot more details about that. How to decide who to subsidize under what circumstances I think is a very difficult thing. And I, you know, frankly that wouldn't be my preferred solution to the problem. I think we ought to, instead, try and encourage lenders to make good decisions and we should really be providing the credit on the home-owner side.
Ryssdal: None of those things are easy to do, right, because you have to figure otherwise, we'd have done it already?
Meyers: That's correct. You know, part of it is that I think people haven't really understood what the problem is and they haven't been willing to take the hard steps. And that's changed. The banks are doing their part. It's really the servicers of these privately securitized mortgages, which are only 15 percent of the mortgages outstanding, but more than half of the defaults. Those are the ones that are the problem and it's become clear that existing measures haven't worked and we need much stronger actions.
Ryssdal: When all is said and done, Chris, a year into this recession and 18 months, two years into the housing collapse, do you think that fixing real estate is still the key to turning this whole thing around?
Meyers: I think it's clear that fixing real estate is the key to turning this around. Just imagine the pain we've gone through with house prices having fallen close to 25 percent so far. A recent Morgan Stanley report predicts another equal decline. Just imagine, we're going to lose our banks, completely. We're going to have almost no private lenders. We're going to have many millions of people not making their mortgage payments. I don't see how we emerge from this crisis without putting a floor on the housing market. I think that was obvious to me a year ago. It's really become clear today, given the correction that's now happened.
Ryssdal: Chris Meyers, a professor of real estate at the Graduate School of Business at Columbia University. Chris, thanks a lot.
Meyers: Sure. Thanks a lot, Kai.
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In response to comments below, that govt should help home owners who took loans they could afford: What about people who rationalized the bubble and did not participate in the frenzy. What about people who are renting. Are they second class citizens? Why should they be punished for their rationalizing things but reward greedy people?
How about this: Help home owners and the "property" that was helped should pay back the "help" when the home prices go up in future. For example if some body took a loan of 300k on house and govt helps them by giving 50k. Now when the house sold in the future for a profit (i.e) over 250K (it does not matter how many owners change for the property), the profit is paid back. This seems fair.
In response to some previous comments, I would point out that to reach one-sided, black-and-white conclusions is probably as much part of human nature as it is to seek a quick path to wealth. Hard to believe, however, that those who 'could not afford a house' banded together, forced banks to lend and conspired to drive home prices higher. Nor is the problem specific to the--increasingly large in number--'have-nots'. See the recent Madoff scandal where well-to-do fell as easily pray to easy money. More likely, in my opinion, the situation we are in was brought about by a political culture of greed and individualism. A culture in which corporations--banks included--yield unfettered legislative influence, encouraged massive upward redistribution of income and increased inequality. Government can and, in my opinion, should step in just as it did with the 'Homeowners refinancing act' of 1933. Failing to defend human dignity and decent living standards it is not only unworthy of our society but also a threat to our security. For this, see for example a recent article in NYT: http://www.nytimes.com/2009/02/15/business/15global.html?partner=rss&emc...
Do people here understand interest rates are set by market and not by govt. You cant directly set mortgage interest rates. If you need to enforce the rate, then govt need to buy those mortgages. That will cost trillions. Where is the money for that? printing press???
Why not cut all mortgage interest rates in half? This would be a large boost to the economy because people who can actually afford their mortgages have will have more expendable money. The banks are insolvent and need government money to keep them going, it seems like the interest they are earning on mortgages are a very small part of their problem.
Julieo Monteiro: Stop saying you were the victim. YOU (well people like you) are the reason for this bubble. Your lending cost is not inflated!!!. You bought a house you could not afford, thiking that you can flip and took a ALT-A loan. Dont blame lender for your mistake.
Take responsibility for your actions and move on. Tax payers should not be funding people like. That is like rewarding bank robber. If anything people like me who were prudent and did not participate in the bubble should be rewarded.
You are assuming the money that funded is coming out of thin air. It is not. Eventually when your loan was sold to investor, some retirement fund would have bought that loan. Somebody's grand mother who is living on fixed income fund is funding your loan. You want these retired folks to take hit, so that your greed is rewarded and your mistake is forgiven.
The Atomic Bomb hit ground Zero about 18 months ago where we live in Las Vegas, NV. Those of us who are still holding on and barely struggling to keep up our increasing Interest Only Alta-A Subprime mortgages that are bigger than the Hover Damn itself are amazed we are not wandering the streets of Las Vegas Blvd. Trust me, I have worked over 70+ hrs a week to keep up on my increasing home loan(s) yet those times are over. I now am lucky to have 36 hrs/week. Which brings me this year to be 3 months behind. I face foreclosure due to inflated lending costs. I have worked, over one whole year, to work with my lender, who states "We do not own the loan, we are only servicing it, & do not have the authority to make the necessary changes". So tell that to my children who are forced to leave their schools and friends that we are yet another victim to the BiG DOGs on Capital Hill who tried to stuff their pockets & looked the other way while we are thrown out of our homes.
Obama and his staff need to STOP the Foreclosure process Nationwide til a resolution comes to pass. Give all of us who were victimized the current market value with a 4% FHA interest only loan with no strings attached. Help the Middle class Americans who are still struggling to make ends meet. Give us a break before we all decide to jump off the Brooklyn Bridge!!!!!
let me understand what this guy is saying:
1. house prices collapsed: What he is saying is the bubble time prices were the real worth of the assets and current levels are not.
2. Put a floor on prices: Inflate the prices and build another bubble.
How do guys like Chris Meyers get jobs in the universities. Does anybody interview these guys.
On the other hand "Market place" needs to have some common sense and avoid putting these junk stories day in and day out.
I, without any formal training in journalism, can produce better stories than this, on any day.
If the government decides to come out with a low interest rate say 4% for refinance and purchase, it forces banks to drop their rates down. Money will start flowing again, but I agree with Bob house prices must come down alot more. This will happen when regular working people wait until homeowners come to reality that their three/two house is not worth $380,000. The average annual income is probably about $47,000 after taxes, there is no way a couple can afford a $380,000 home. Following the old rule of sum, a couple making $47K, can afford a $94K home this is real.
Here we go again with another economist who fails to understand that the reason we're in this mess is because prices got too high. let me say it again: This problem will go away once prices come back to levels buyers can afford. Trying to prop it up and re-inflate the bubble is NOT the key to long term economic survivability.
I think the better option is for govt to take over housing entirely and allot houses to each person, soviet communism style. That way the system is at least fair to everybody and people like me who were prudent and did not participate in the bubble dont suffer. I dont have to worry about housing becuase govt is going allot a house to me. Seems fair to everybody.
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