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Small steps taken for troubled borrowers

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TEXT OF INTERVIEW

Kai Ryssdal: Jeffrey Lacker's probably not a name too many of you out there know, unless you follow the Federal Reserve pretty closely. Lacker's the president of the Richmond Fed. He's also a member of the Federal Open Market Committee. That's the group sets the Fed's main interest rate, the Federal Funds rate.

Anyway, Lacker said today he's not entirely convinced that rate needs to be lowered. Which sets up a whole lot of people on Wall Street to be disappointed when the FOMC meets to talk about interest rates on September the 18th.

The Fed did do something today that could matter to a different group, though. The central bank asked mortgage lenders and loan companies to find a way to ease up on subprime borrowers -- people who might be facing foreclosure.

Marketplace's Steve Tripoli's here with more. Hi, Steve.

Steve Tripoli: Hi, Kai.

Ryssdal: So the Fed came out with these guidelines today about help for borrowers. And I use that word intentionally -- these aren't guidelines, it's not an order or a regulation. What are we looking at in terms of help now in the subprime crisis for homeowners?

Tripoli: Well, there's a bit more than guidelines for now, and there's a reason given for why we're not seeing more than that, but let's look at what we have seen. Last Friday, President Bush announced a plan to help 80,000 distressed homeowners refinance their mortgages. Congressional Democrats point to the much larger number in trouble and say that's not enough. And we're also hearing of a Senate bill coming up this month that supposedly will set aside $100 million. That money is for nonprofit groups to use to help homeowners find refinancing for their mortgages. That's what we know is in the pipeline so far.

Ryssdal: Sounds a little bit, though, like baby steps. You've got 80,000 people being helped by the president's initiative, but there are something like 3 million adjustable-rate mortgages due to reset in the coming year. A hundred million dollars somehow doesn't seem like a whole lot of money. What's with the incrementalism here?

Tripoli: Well, Kai, the problem is that all sides and all political stripes have to walk a fine line here. They want to target help to the many people who were duped or scammed into bad mortgages. On the other hand, lawmakers and regulators don't want to bail out speculators and dicey loan companies, because it just encourages them to keep doing the risky things that got the whole financial system into trouble in . . . you know, now and the future. So it's gonna take some time to figure out how to target help to the right people. And of course, the problem there is that some of the folks who deserve help don't have much time.

Ryssdal: What can we expect, do you think, with the inevitable congressional hearings on this? Who's gonna be in the hot seat, and what kind of questions are they gonna face?

Tripoli: Well, there is a special hot seat reserved for the ratings agencies -- the folks on Wall Street who were telling all of us, for a long time, that these packages of subprime mortgages that were packaged as investment securities were great investments, and safe investments. And of course, neither of those turned out to be true.

And Congress wants to know, and we know for a fact that they're going to be asking these questions: Why those ratings agencies blew their ratings on the risk of these investment packages? And also, they want to talk quite a bit about conflicts of interest that Congress perceives in the fact that these ratings agencies are paid by the very people they rate. So there's gonna be a seat at the table for those agencies for sure.

Ryssdal: What about some of the subprime lenders and the lengths that they went to to make these loans, and people to whom they were offering. Are they gonna have to answer any questions?

Tripoli: Well, there's been an increasing . . . you can't even call it a trickle anymore, there's been a steady drum beat of stories about the tactics that were used by these subprime lenders to get people into loans. And the tactics were, at the very least, duplicitous, and in many cases, I'm sure, will be proven to be illegal.

And they will also be shown to be steering people into loans that were inferior to the loans that that very same borrower could have received, more expensive loans than the borrower qualified for. So those folks are gonna have a place at the table, too. Of course, one of the problems there is that a good number of those lenders are out of business or on the verge of it. So I'm not sure who gets to come to the table there. But you'll be seeing subprime lenders at the table as well, for sure.

Ryssdal: Marketplace's Steve Tripoli. Thank you, Steve.

Tripoli: You're welcome, Kai.

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