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Reuters Washington Columnist Daniel Indiviglio on calls for a government mortgage modification program because of the struggling housing market and wh...
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-- is still struggling -- foreclosures still at the storefront existing home sales falling last month also foreclosures.
Making up nearly 30% of the sales that did happen that's about triple the norm and a healthy market.
At my next guest says this is only gonna fuel the fire for the push of another huge bailout that would let Fannie and Freddie.
Cut the actual mortgage -- for underwater borrowers and that could cost taxpayers.
Tens of billions of dollars.
Daniel in a big Leo joke from Reuters joins us now Dan good to see yet so we could be paying for our neighbor's mortgage right.
Right that's the -- so -- the theory here is a mortgage modification called a principal reduction which is sort of the most aggressive content.
And what what some in Washington want to have happen is for Fannie Mae and Freddie Mac who -- millions of mortgages to start cutting people's balances which are basically be.
One taxpayer paying for -- taxpayers mortgage.
But you say you bet it's not as simple as a -- President Obama puts a pretty simply says just cut the principal on underwater mortgages and everything will be alright well.
Sounds simple sounds easy but it could end up causing a lot of money you actually.
Put a dollar figure on how much it would cost tax figure payers of a 128 billion box how'd you get that figure.
Right so you obviously something has to pay for this Wright -- and a fortune in this case we're talking about what we don't have nobody had to pay for -- -- free and that it's -- like obamacare and the -- -- -- -- at work.
So yeah unfortunately taxpayers are the ones who are gonna suffer here and and -- -- how do it works is what it does is that it does a sort of financial calculation where it takes.
Both interest and principle that -- borrowers would have paid.
Before they got their principal reduction -- -- compares that to -- what they -- after right pretty pretty basic but it also -- you know time value money sort of stuff.
And it basically comes then it's -- the what -- taxpayers would face and indicates that this program were open to not only defaulted borrowers but also other borrowers what Fannie Mae and Freddie Mac mortgages but are very underwater.
Which is to save their loan is much bigger than their house is worth.
I -- -- 120 billion dollars does is it yeah if I could just make it a little more simple it increased the risk.
For the people lending the money right and that's eventually what also.
Raises a cause for everybody.
Well yeah I mean what the cost here is is -- were comparing this in dynamite and my calculated we compare to other mortgage modifications less aggressive sort of mortgage modification techniques.
So this is another -- much more a much more costly way to try to prevent foreclosures it doesn't seem crazy to you you've been studying this issue for a while to pour more money.
Down -- Fannie and Freddie singles I mean it seems like they're more money we pour down there that things don't don't change significantly is just a waste of cash.
Yeah and I mean in this in the situation other thing that's so crazy about -- more much looked modifications is so many of these people read he -- anyway.
So you're basically throwing good money after bad.
I had on a lady not too long ago she had a have bought a house for 700000.
Dollars and her sole source of income.
Was a daycare center where she made a couple hundred bucks a week I mean there these type of people.
And she has been taking care is taking -- of every loan modification program that the government is sponsored.
Over the past three or four years and it's that type of person who will be encouraged to stay when she never should have been in there in the first flights.
Yeah and I think it you know at some point you have to draw -- line somewhere and one thing that the the Federal Housing Finance Agency who's the regulator for Fannie and Freddie.
As you know they've they've kind of before now drawn that line and they said well you know we don't think we want to prince reductions we think they're too aggressively worry about a slippery slope and moral hazard all these kinds of things and but it seems that the political pressure on election -- grown grown so it's hard to see that though you know.
Hold tight Dan and a big Leo from Reuters well thank you for the reporting good stuff.
