Silver bullet or bullet dodged?
President Bush make a statement on housing with Treasury Secretary Henry Paulson at the White House.
TEXT OF INTERVIEW
Tess Vigeland: Well, we haven't changed the name of the show -- yet -- but it was another big week in mortgage-land.
We learned foreclosure filings hit another record high in the third quarter and President Bush announced his plan to get relief for homeowners facing the possibility of losing their homes.
President Bush: We should not bail out lenders, real estate speculators or those who made the reckless decision to buy a home they knew they could never afford, but there are some responsible homeowners who could avoid foreclosure with some assistance.
That assistance will come in the form of a five-year interest rate freeze on some subprime loans. The freeze will not be available to borrowers who are already behind on their payments and eligibility hinges on having at least 3 percent equity in your house, which could be tough in situations where borrowers put no money down and prices have fallen through the floor.
For some perspective we turn to our friend Nick Retsinas at the Joint Center for Housing Studies at Harvard.
Vigeland: Nick, the Treasury Secretary admitted this is no silver bullet... is it even a tin one?
Nick Retsinas: It is certainly a step in the right direction, but it's not a big step. This helps people who are current now -- have good credit scores -- and gives them some opportunity to avoid getting into trouble later. That's a good thing, but it's well short of a comprehensive plan that would address the serious problems that we have.
Vigeland: What's the main thing that this plan is missing then?
Retsinas: Well, part of it is the extent of coverage. What's it's missing is sort of reaching down to people who are in trouble today and what it doesn't do is really sort of stop the wave of foreclosures that is about to exacerbate what is already a very serious housing problem.
Vigeland: What's your take on some of the criticism that's been leveled over the last week or so as this plan has kind of trickled out that it's really not fair to those people who got appropriate mortgages for themselves?
Retsinas: Well, they are limited to owner occupant, so clearly if this were a plan that would bail out investors, it's hard to imagine anybody supporting that. At the same time, the larger problem is one that affects lots of people and it can be disruptive to the entire economy. So from my perspective, both of those justify a public policy intervention. My question is: is this a sufficient intervention?
Vigeland: What else would you like to see happen?
Retsinas: I think they have to look at the issues of bankruptcy reform to find a way for people to sort of get out of this burden. We have to find a way to expedite short sales, that is, people able to sell their homes without carrying an extra burden. We have to make sure that there's money for counseling and we have to make sure that there's money to help non-profits help buy some of these foreclosed properties and if we don't do that quickly, it's going to be hard to sort of keep up with the problem.
Vigeland: Well, in his speech this week, the president said this is what my administration is doing and I urge Congress to take a look at other possible solutions including, perhaps, some modifications at the IRS, where you are actually taxed if you do a short sale on your house -- that's considered income. What's the likelyhood we'll get more action from Congress?
Retsinas: Very unlikely. This would have been a great request of Congress 60 days ago or 90 days ago, but at this point, Congress only has several more days before they go home and if they go home without tackling this problem, I think they're going to get a lot of angry questions and questions that could probably be asked of the entire administration.
Vigeland: If, indeed, this Bush Administration plan really only helps a small slice of those who are having trouble with their mortgages, what does that portend for the overall economy. If all these people start going into bankruptcy and foreclosure then this really hasn't done much to help the economy has it?
Retsinas: Well, that is the bullet we have dodged and again, this will help a little, but we're on the brink of a much more serious economic problem. Every day as we look at these numbers, it becomes clearer and clearer that this will in fact lead to a much more serious recession.
Vigeland: Nick Retsinas is the director of the Joint Center for Housing Studies at Harvard University. Thanks so much Nick, as always.
Retsinas: Thank you.