HUD has been busy over the last 20 months dealing with foreclosure. What is the role PD&R plays in developing the policies and programs that address the foreclosure crisis?
HUD’s involvement in these sorts of issues is not something that’s been a standard experience across its history. The housing crisis has been so deep and so central to the broader economy that it, on some levels, has been an all-hands type of exercise. Anyone in this building who thinks about housing, particularly in terms of how it engages with private markets, has been engaged: PD&R, a lot of folks in the housing group, the FHA, folks with Ginnie Mae as well.
And we’ve really tried to divvy up the tasks in terms of just getting a sense of what’s happening on the ground: Where are foreclosures being concentrated? Is it owner occupied? Or investor communities? Is this an adjustable rate reset issue? Is this a job loss issue? There’s a whole multi-dimensionality to the problem, which has been difficult.
And then, we’ve also been working hard to really monitor the response. How have our programs been working in terms of loan modifications, in terms of servicer activities in the private sector?
We’ve rolled out this principal reduction program, and the response is pretty significant and pretty deep. From Treasury purchases of securities to backstop Fannie and Freddie, to the first-time home-buyer tax credit, to the stuff we’ve done with FHA, there’s been a laundry list of things that we’ve done to try to support the market, because it’s hard to imagine us getting to a high level of economic growth without the housing market getting to some level of stability.
Of all the things that you’ve discussed, one of the more contentious ones is principal reduction. How do we get to recovery without a serious reduction in principal that acknowledges that values have gone down and everyone has to take a hit?
We think that principal reduction has got to be on the table. We’re not suggesting that every person who’s underwater should be supported. There is risk in the marketplace. There are folks who were investors or took gambles or whatever. One of the challenges is to try to make sure that these policies are targeted in a way that we get to the people who are most deserving of that kind of support.
The second thing is really to try to make sure that those who took the risk bear the loss. We’ve defined these programs is that it’s lenders who are going to write these things down, and it’ll be relatively limited government involvement.
That’s been difficult to try to structure, and that’s one of the reasons why this has taken longer than we might have wanted. But we’ve really tried to design this in such a way that it does appeal to the market elements of lending, that there is some risk. It may not work out, and if it doesn’t work out, you, the lender, should take some of the loss.
It’s so different from private gain and public risk.
Yeah, we’ve been down that road before and we definitely don’t want to go back there.
Comments