Julia Coronado: Helping underwater homeowners doesn’t fix entire market

Marketplace Staff Oct 24, 2011
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Julia Coronado: Helping underwater homeowners doesn’t fix entire market

Marketplace Staff Oct 24, 2011
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Jeremy Hobson: President Obama will be in Nevada today, where 60 percent of homeowners are underwater on their mortgages — meaning they owe more than the value of the house. The president will be announcing a new plan that does not require congressional approval. It would allow underwater homeowners to refinance at a lower rate through a federal housing program.

Julia Coronado is chief economist with the investment bank BNP Paribas. She’s with us live from New York as she is every Monday. Good morning, Julia.

Julia Coronado: Good morning.

Hobson: So tell us first of all, how would this help the average underwater homeowner deal with being underwater on their mortgage?

Coronado: Well, so it’s not necessarily targeted at the average homeowner, but just those that owe more than their house is worth. So then they currently have mortgage rates above the prevailing rate and they’ll be allowed to refinance down to these lower mortgage rates, therefore their housing payment goes down and they’ve got more money to spend. And so it helps their economic situation — potentially meaningfully.

Hobson: And big picture: does this help the housing market in a big way?

Coronado: Well, not necessarily. If you think about the number of homeowners who will be helped by this, again for these individual households it will be quite meaningful, but that only adds up to a little bit of purchasing power for the broader economy. So one, that doesn’t mean a huge boost to the economy; number two, there’s still a lot of issues in the housing market holding things back, not just these underwater homeowners.

Hobson: Julia Coronado, chief economist with the investment bank BNP Paribas, thanks as always.

Julia Coronado: It’s a pleasure.

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