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40% Second Mortgage Homeowners Under Water

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    Chandan Economic President Sam Chandan weighs in the current housing hole.

  • Duration 5:06
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If it doesn't have to be something also that that our president talked about was that was the US recovery not found -- -- -- isn't.

At this -- I don't see a double dip recession in the US economy but Whitman talking about.

For weeks now here Fox Business possible double dip in the housing market in fact folks I think it's not last week a lot of economic problems.

Here in this country a lot of it has to do with the housing boom and then the bust.

Where finding out folks today currency numbers the Wall Street Journal by the way that almost 40% of homeowners.

Who borrowed for second mortgages are now underwater they owe more than their homes are worth this could be the disaster that we're not talking about yet -- Chan and -- an economic president chief economist.

Is with -- -- core logic came out of the port ahead of the journal was all over the story this morning -- but were you surprised.

By the fact that only 40%.

Of homeowners that took down those second mortgages were now under water.

No I don't think it's surprise at all I think that.

People who took out second mortgages were -- inevitably seeking to layer on additional leverage on top of their primary mortgages.

We had a market -- between 20022003.

And we're really up to the point where.

Housing turned negative and began to exert -- significant drag on the economy where lenders were more than amenable to extending credit in a way that.

-- supposed that we we couldn't really experience any decline in the value homes.

Inevitably that's what's happened home values -- fallen.

And so we find that a very large share people who took out -- second mortgages and very often not for reinvestment into their homes but two make investments or.

Two energy consumption and other areas -- on holidays.

You know by buying televisions paying tuition.

From any of those things.

We have -- we have a policy regime we have to understand it also encourages are taking home equity lines of credit.

-- given the deductibility of the mortgage interest given the lower cost of credit through home equity lines as compared to credit cards people were really encouraged for very long period to do that.

Two point six trillion -- between 04 to six people took out 20 -- next twelve.

Ten dollars.

An economically and that but this is why is this is why Europe matters look.

That of the EU the US economy the economy the global economy for ten years twenty years thirty years was driven by American consumers.

We were -- against our houses spending like mad.

Power in the whole economy.

That is over that's what these numbers tell you.

You knock you can't count on the American consumers to pull us out of this slump.

The growth -- come from somewhere else we need the rest of the world the -- forbidden for the next stage of growth.

We're gonna have to rely and the rest of the world not vice Versa.

That's why Europe matters again.

Asia we now think Europe -- we got Asia what has grown at 45 times the rate of Europe.

And and I think also that sophisticated financial institutions that went to a near death experience.

And 0809.

Ought to be better -- in better shape to adjust to any -- becomes nothing has to be a disaster.

You have something interesting in Atlantic that's a sand because it seems to -- is the issue of credit and credit is not available if you got a home that's underwater now.

Forget trying to refinance that's gonna be next to impossible.

And forget trying to deal with the bills that you may have that you because you bought that boat with the with the second line of credit that you can't pay the payments on our right.

Consumers are constraint were beginning to see some signs that they're credited seizing but only for the share of the population that is it you know gainfully and securely employed.

I think the real key to this whether we're talking about.

Helping people to get out of homes where they can't make the payments every month or talking about a lot of people to access credit again to drive consumption up to -- about cholesterol is a big piece about a -- because we don't -- to give credit to people whose houses are under -- and who don't have jobs and I got -- got into this -- there are absolutely we need to see we need to see demand that is -- driven not -- public policy intervention but by growth in the number of calls for people come back into the -- say.

Here now that I have a secure stream within comic to potentially think about becoming a homeowner.

But ultimately is what will drive demand for housing not not short term interventions designed to accelerate deductions or anything else -- support prices.

I don't wanna get judgmental here but the very fact that anyone takes out a second mortgage on a home yelling -- play the game of monopoly.

When you start mortgage and property and take -- second -- to -- clear sign of trouble.

Shouldn't we know from the very fact that you take a second mortgage and all that it might be that you're more likely to possibly defaulted someone who has only one mortgage on his home.

Absolutely we know that there's a strong what economists would virtue was a selection bias.

-- the person who is going to go and take a second mortgages very often.

Riskier bet for the bank during the period from the early two thousands right up until the point where housing prices start to decline.

-- -- bank risk models were really playing down those risks and that credit was extended in spite of the fact that exactly what you point out is correct.

Well you gotta come down the jobs element the end of the day and that's and in that I think the other man we just on television the president's gonna have to address in a rather than later Santana thank you very much.

Thank you for standing by by the way as we listen to that news conference from President Obama.

And German chancellor on the --

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