Hill Hearing Focuses on Foreclosure Crisis
MELISSA BLOCK, Host:
From NPR News, this ALL THINGS CONSIDERED. I'm Melissa Block.
ROBERT SIEGEL, Host:
And I'm Robert Siegel.
Today, President Bush said the fundamentals of the U.S. economy are strong, but he acknowledged some unsettling times in the housing market. He was referring to the real estate downturn and the fiasco in subprime lending. Foreclosure rates are now at their highest level since the Great Depression.
Today, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson told Congress that the government will not stand by and let the subprime crisis escalate.
NPR's Chris Arnold reports.
CHRIS ARNOLD: The Fed chairman was on the Hill today on the heels of a surprisingly large cut in interest rates. That move was in response to worsening problems with housing and the subprime loan crisis, which has been spilling over more to tangle up financial markets and hurt the economy.
BEN BERNANKE: The financial market turmoil has effectively tightened credit conditions that has the risk of making the housing correction more severe and may have other effects on the economy. So we took that action to try to get out ahead of the situation and try to forestall potential effects of tighter credit conditions on the broader economy.
ARNOLD: At the heart of the trouble are millions of unorthodox loans that are adjusting much higher. Bernanke said 15 percent of subprime loans were seriously delinquent as of July.
BERNANKE: Higher delinquencies have begun to show through to foreclosures. About 320,000 foreclosures were initiated in each of the first two quarters of this year. Delinquencies and foreclosures are likely to rise further.
ARNOLD: A growing number of economists estimate a total of more than two million people could lose their homes over a longer period of time. For his part, Treasury secretary Henry Paulson used the opportunity to try to give some advice to struggling homeowners around the country.
HENRY PAULSON: Fifty percent of foreclosures occur without borrowers ever talking to their lender.
ARNOLD: Paulson says that homeowners often don't call their lender or don't return calls because they assume the lender wants to take their house. But lenders say in most situations, they lose money upwards of $50,000 when they foreclose. Paulson said lenders want to avoid that.
PAULSON: And so the most crucial message we can send is to the borrowers who are missing or concerned that they will miss their mortgage payments. Call your lender or a mortgage counselor today. The earlier borrowers reach out the greater the possibility that they will be able to modify their mortgage into one that allows them to stay in their home.
ARNOLD: For homeowners who could afford a reasonable interest rate, there are basically two ways out of the woods here: either their lender agrees to a lower rate or the homeowner refinances out of a loan into one that's more affordable. One idea to help with that has been to loosen restrictions on the government- backed mortgage companies Freddie Mac and Fannie Mae.
Richard Syron is chairman of Freddie Mac.
RICHARD SYRON: Freddie Mac can't solve the whole problem, but we can be and should be a part of the comprehensive solution.
ARNOLD: The federal Department of Housing and Urban Development will also play a role by helping to secure refinancing for borrowers. But HUD secretary Alphonso Jackson told lawmakers his agency would not be offering a bailout to people who speculated or just bought more house than they could afford.
ALPHONSO JACKSON: So we are very serious. We're not going to make the same mistake that some of the subprime lenders made in the sense that they didn't really look at the credit worthiness of the person. We're not going to do that.
ARNOLD: Housing advocates are also pushing for a change in the bankruptcy code that would require a judge to get involved before a lender can take a house if a borrower files bankruptcy.
Chris Arnold, NPR News. Transcript provided by NPR, Copyright NPR.