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Report: More foreclosure help needed
Elizabeth Warren, chairman of the TARP Congressional Oversight Panel, testifies at a hearing on Capitol Hill, in Washington, D.C.
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TEXT OF INTERVIEW
Steve Chiotakis: A Congressional Oversight Panel is out with a warning today: The government program to help homeowners avoid foreclosures -- known as the Home Affordable Modification Program, HAMP -- is falling short. The panel is chaired by Harvard law professor Elizabeth Warren. And Professor Warren is with us now. Good morning.
Elizabeth Warren: Good morning.
Chiotakis: So why isn't this plan working very well?
Warren: Well, we think it has three basic problems. 1) Scope -- It's targeted at a housing crisis as it existed six months ago. 2) Scale -- It's not moving into big-enough numbers fast enough. And 3) Permanents -- We're concerned that people may go through the program, but actually be re-defaulting in big numbers down the line.
Chiotakis: Why wasn't the government more aggressive about tackling the foreclosure problem? I mean we knew that the recession was setting in and unemployment would rise when the financial crisis hit. It seems like rising foreclosures were being predicted even back then.
Warren: You know, it's true. We did our first report six months ago and came to the conclusion that there was a crisis then, and quite frankly, it's only gotten worse. I think part of the problem is that there's been kind of a let's put a lot of energy into who's a deserving homeowner and who's not, and I understand that impulse. But in the meantime the fire is spreading and costing everybody in America a lot of money.
Chiotakis: And what's your recommendation for improvements to this program? What do you say to Republicans who say no good money after bad money?
Warren: Well I wish it were good money after bad money that we were talking about here. I see the appropriate way to understand this really is the fire metaphor. Our neighbors' homes are on fire, and we can sit around and talk about how the fire got started and we can talk about which ones we think we ought to save. But the truth is, if we don't do something, it's going to burn down the rest of us. So this is really about trying to find the most cost-effective way to save the economy, and if that means trying to save some of these homeowners and keep good people in their homes, and keep communities in tact, then that's what we ought to be doing.
Chiotakis: Professor Elizabeth Warren, chair of the oversight panel. Thanks for being with us this morning.
Warren: Thank you.
C K
I have to disagree. During the real estate bubble people knew it was too good to be true. They bought houses they couldnt afford. To make them afford they used lier loans/sub prime/option etc. loans. During the process they exactly knew what they were doing. But in a bubble you believe that asset prices will always go up. In this case they believed the house prices will never drop and they can refinance and use houses as ATM. Well the bubble burst. Now dont claim innocence. This is no different that nasdaq bubble.
gb gb...See Harvey's comment below yours. The Nasdaq bubble purely born by people looking to make a buck (People usually don't buy stocks for any reason other than for the hope of profit) Most homeowners in the U.S., however, probably purchased their home because they needed somewhere to live where they could be their own landlord. Investment bankers, who see nothing more than an investment in the transaction, preyed on people looking for somewhere to live away from the scrutiny of a landlord. Sure there were some people who "invested" in real estate, but the majority of people were just looking for a place to live. In the real estate bubble, the lesser of two evils was definitely the homeowners whereas the NASDAQ bubble produced two equally guilty parties.
What makes housing asset a privileged asset where tax payer money needs to be spent to save irresponsible people. These people participated in the biggest real estate bubble and let the market take care of them. Why cant they move out and rent.
When nasdaq bubble burst I didn see talking heads like this coming out and talking govt funding the private stock losses. Why are they doing now?
Where do people like me who did not participate in the real estate bubble and are renting fall in this whole schema. In silicon valley the house prices still not affordable and let the market take care of prices instead FED and govt constantly intervening in the markets.
I will cede Dr. Warren's point that your neighbor's house is on fire and you risk burning down the neighborhood. The follow-on that most politicians and people like Dr. Warren don't have the courage for is after the fire is put out, those people (AIG and Citibank management team, people who borrowed more they could afford and the rest of the responsible parties), should no longer be in charge of anything. They've proven their capabilities in lighting their house on fire.
The media and the talking heads like to blame the foreclosures problem on people that had outrageously bad loans, but the truth is beginning to get some notice, that the true problem is that people are losing the incomes they had when they qualified for the loans. People earning enough money on their jobs to pay their mortgages, car payment and health insurance is becoming too big a burden for our economy to bear. So where do we go from here? There are 2 options but both have real problems. 1. Let the price of homes adjust downward to lower incomes by doing nothing and letting the free market foreclose on everybody. All the investors in housing will have to accept the reduced value of their investment. 2. Stop the slide in home values with a program for modifying loans to make them affordable to lower incomes, which will reduce the value of investments in mortgages. Either way someone loses something. There is no way to solve this so that no investors lose something. So we now have to pick our losers, and the lesser of the evils is to have loan investors lose. That will cause the least amount of suffering.
