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Jed Kolko, Trulia.com chief economist, on the potential impact of cutting principal for up to 700,000 borrowers underwater on their mortgages.
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The call.
Well should Fannie and Freddie allow principal reduction to help struggling homeowners with underwater mortgages -- coal goes chief economist.
-- dot com.
At -- carries it this is just incentive.
For some that don't wanna -- this system playoff Fannie and Freddie and frankly walk away from mortgages -- Stallone.
-- question is really the core of this issue.
The concern is that if the FHFA the regulator of Fannie and Freddie allow the agencies to consider -- for reduction.
Will people purposely fall behind on their payments in the hopes of qualifying for principal reduction the truth is no one has any idea.
How widespread this is likely to be.
But it's a big partisan issue and that's because Democrats are generally much more willing to accept policies.
With even if some people end up gaming the system that fit that Republicans are that's -- we found at a survey of consumers that we did hear Trulia.
Well let me ask you -- -- the question here at what is better to have.
A massive amount of foreclosures in 2012.
That you have prices double level off and potentially become realistic we keep waiting for that or.
Is the option to trying keep people in their homes.
Do you know do this principal reduction idea.
Need to lower the payments I mean which is a better plan do you think dead for the country frankly for the housing market overall because it seems like we've been leveling off.
-- -- -- Well the fact is that whether the FHFA allows principal reduction or not won't make a huge difference in the number of foreclosures that we see.
That's because it's not -- -- the FHFA is either going to allow principal reduction or do nothing at all.
Already Fannie and Freddie have lots of tools that they use.
To modify loans such as reducing interest payments and deferring principal.
Even among those types of banks and servicers that are allowed today to use -- for reduction.
They only use about 30% of the time that it's available to them so principal reduction is far from the only thing.
That banks can or will do to help modify look.
Killed in the best best of the crux of the problem -- -- would you agree is that basically what you have is.
Five different programs over the last five years that it would hope for homeowners on down.
All of these were directed at trying to keep people in their homes but unemployment has stayed about 8% it was above 9% these programs didn't.
Work it seems like this potential idea this program again what you say is RD but it you know possibly in place here.
Is just another way.
-- -- extend a problem -- let's get the foreclosures out.
Get the market cleaned out and start at at the bottom basically for a price -- -- -- there are two reasons why housing policy has struggled so much to make a difference first of all as you say so much of what's.
Behind the housing crisis today is the lack of demand due to the recession -- yeah all the supply that we've seen because of the overbuilding.
And helping people stay in their homes won't solve the fact that we got still relatively weak housing demand and a lot of housing supply.
The other problem of course is that our housing policies and -- and that's because it depends who owns or insurers are guarantees your mortgage.
If you happen to have a Fannie or Freddie backed loan.
And you qualify for some programs and not others and in the robo signing settlement.
People are eligible for compensation if they were foreclosed on but only if that was from one of the five banks involved.
And so who holds your mortgage.
Has a big impact in whether policy's gonna healthy or not and that's an equitable and frankly it makes our policy amassed and -- -- hard for any one policy.
To really have a big dent in the -- Are dead before the -- they don't ask you this overall at the banks have really been every time that we have any type of interest rate -- mortgage analyst them -- -- they'll tell me over and over.
This is the bank's fault -- the bank's problems they've been sitting on these toxic mortgages and other gonna dump them out.
And that the banks if you with you want those those foreclosures but.
They've actually got to come to the table with the lending they are not doing that is there any bright spot -- banks right now -- So -- the economy strengthens we will see credits start to loosen the -- we haven't seen much of that yet but that's something to look forward to.
The other thing is that we've seen.
Lots of foreclosures get delayed because of uncertainty around and the -- -- settlement and on top of that.
Many states make it very difficult to go through foreclosure process quickly so all these factors.
Really summed up the works.
And causes huge overhang of homes.
That are inevitably gonna go through foreclosure process later on this year or next jet called a -- you back thank you very much from -- -- dot com.
