TEXT OF INTERVIEW
Kai Ryssdal: We learned courtesy of the Wall Street Journal this morning that the federal government is thinking about getting even more involved in the real-estate market. The paper says the White House is putting the finishing touches on a $35 billion shot in the arm for state and local housing programs. Question is, how come? To get the answer we’ve called housing economist Nicolas Retsinas at Harvard University. Mr. Retsinas, welcome to the program.
NICOLAS RETSINAS: Nice to be with you.
Ryssdal: What is happening on the state and local level in the housing market that they need $25 or $30 billion?
RETSINAS: Well, a number of states, almost every state, has something called the Housing Finance Agency. They’ve existed in various forms over the last 30 years. Traditionally they issue bonds, and they use those bonds to buy mortgages for first-time home buyers. What’s not happening is states are having a very difficult time selling these bonds. As you might imagine, anything with the word housing on it is looked at as scant by possible investors.
Ryssdal: So here we have Fannie Mae and Freddie Mac, the Treasury Department also getting further into the housing market, down deeper at the local level.
RETSINAS: To put this in context, in the third quarter this year, 90 percent of all residential mortgages in the United States were touched by the government. Either insured, guaranteed, securitized. So this is just one more step where government de facto becomes the housing finance market of the United States.
Ryssdal: Well, let me ask you this then, as the government is pulling back on some of its other bailout mechanisms, the Federal Reserve, and TARP is being paid back, the government is still very heavily into the housing market is what you’re saying.
RETSINAS: Very much so. The Federal Reserve, for example, announced that it’s going to continue its purchase of mortgage-backed securities, which they’ve purchased over $800 billion so far, with a target of over $1.25 trillion, so they’re still very much involved. And the question would be if they weren’t involved what would happen in the housing market?
Ryssdal: Well one thing that might happen is that fewer people would own homes. Is that reasonable?
RETSINAS: Fewer people would own homes because credit would be tighter, the interest rate would be higher, down-payments requirements would be higher, all of which would lead to fewer perspective buyers. There are already too few buyers now for a functioning housing market in a country our size. This would further tighten those credit markets.
Ryssdal: Maybe you see where I’m going here, though, but wouldn’t it be good to tighten up requirements for the housing industry? Isn’t this part of how we got into this mess in the first place was too many people who ought not to be in houses in houses?
RETSINAS: That’s certainly part of a general orientation. To be candid though the housing finance agencies never got swept up into the subprime lending. So ironically the housing finance agencies really have been among the most prudent of lenders. The odd thing is that it’s so late in the game. It’s a wonder this wasn’t done a little earlier on, but at this point, it’s just one more step in what is a giant footprint in the housing market.
Ryssdal: Well, in percentage terms, as you mentioned earlier, it’s not that big of a step in. Is it too little too late to do any good?
RETSINAS: It is a little late. But if you’re a first-time buyer, standing on the sidelines deciding whether to buy a house, it may be that added incentive. So it will add a little bit of oomph to the housing market. But the price of that oomph is the government getting even more deeply involved and taking on, again, added risk.
Ryssdal: Nicolas Retsinas. He’s the director of the Joint Center for Housing Studies at Harvard University. Mr. Retsinas, thanks so much for your time.
RETSINAS: Thank you.
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