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Tess Vigeland: So let’s try to end on a hopeful note.

There’s got to be a solution to this mortgage mess, although none of the current fixes seem to be stanching the flow of red ink through the housing market.

Our friend Nick Retsinas is here. He teaches housing economics at Harvard…

Vigeland: Nick, yes we’ve heard and seen lots of proposals, but why can’t the bigwigs seem to get this thing under control?

Nick Retsinas: A couple of reasons. One, I think there is a general reluctance to interfere in the marketplace. Number two, there are lots of disagreements about how to intervene and thirdly, this will be a very expensive intervention.

Vigeland: Well, let’s talk about one of the plans currently being debated in Congress, this is becoming known as Frank-Dodd for Rep. Barney Frank and Sen. Chris Dodd who are talking about beefing up the Federal Housing Administration and using that agency to help solve this problem. Can you give us a kind of a quick look at what this proposal is?

Retsinas: Sure. The gist of it is to use the insurance and guarantee authority of the Federal Housing Administration. The notion is that the loans that people are delinquent and defaulting on would be recalibrated and recast and part of that loan would be guaranteed by the government

Vigeland: Well, let me ask you to apply this to a real-world example. Earlier in the show, we heard about the Goslins who bought a condo in Sacramento for $193,000 three years ago. It’s now worth $95,000. They’re walking away. What kind of alternative would this legislation provide?

Retsinas: Well, if this legislation were to go forward as it were, what it would probably do is say to that family, “Well, now you have a new mortgage and that new mortgage is much closer to the market value and much closer, we hope, to what you can afford to pay understanding that you no longer have a home and are unlikely to have a home that will be valued up to your original purchase price.”

Vigeland: What kind of reforms do you expect to see or would you like to see in terms of mortgage brokers, the appraisal business, kind of all these players within this crisis who, at this point, everybody says “wasn’t my fault?”

Retsinas: Well, I think we ought to shut the barn door to make sure horses don’t leave tomorrow. I think the kinds of reforms that are spoken to which is more licensing and oversight of mortgage brokers, more liability and responsibility to the participants in a lending decision, all make sense. Those are reforms to make sure we don’t repeat the same mistakes five, 10 years from now.

Vigeland: For those folks who were more prudent than others and decided to wait out the housing boom, is there any way for them to know when we’ve hit bottom?

Retsinas: Not really, because you have to look at so many other factors. Like any asset class, you only know you’ve hit the bottom after you’ve reached it and sort of turned the corner, but certainly, for anyone sort of looking to buy, I think they have to put a premium on “is this a place I really want to live in; is the a place I want to raise a family?” I think in the recent past, we’ve been a little too biased towards investment value. I think that has to take a backseat for a while.

Vigeland: So the home has to become a place that you really want to live in?

Retsinas: It’s going to be a place to live in, not a place to buy and sell.

Vigeland: Nick Retsinas is director of the Joint Center for Housing Studies at Harvard. Thanks so much for joining us again.

Retsinas: Thank you.

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