One on One with Steve Preston, U.S. Secretary of Housing and Urban Development
Thursday, July 31, 2008
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SUSIE GHARIB: Now that the massive housing rescue bill is law, one person who will be overseeing its implementation is Steve Preston. He's the U.S. Secretary of Housing and Urban Development. Earlier today, I talked to Preston and asked him if he thinks the new housing legislation will really help 400,000 homeowners, as the Congressional Budget Office has estimated.
STEVE PRESTON, HUD SECRETARY: It's tough to tell really until we open up the program. I think the Congressional Budget Office did the best it could in estimating the number of people, but there are a lot of complexities in getting these loans restructured and refinanced and so at this point, we really don't know if that's a good number. We won't know until we begin to see the applications coming in.
GHARIB: Mr. Preston, how confident are you that the home owners who are going to be getting assistance will be able to make their payments on the new loans and stay out of financial trouble?
PRESTON: That's something we are concerned about. The way this works is this portion of the bill is specifically designed for homeowners who got loans that are greater in value than the price of their homes. So the lenders must write down the loans to 90 percent of the home value before they can be refinanced. And in addition to that, they should be doing credit work to ensure that those are credit-worthy borrowers. I would say however that the Congressional Budget Office did estimate in its report that roughly a third of those people would end up in foreclosure again and the funding we've received for the program anticipates that number.
GHARIB: So some of these people are still going to be in trouble and even the ones who do manage to make their payments, is that going to be really enough to make a difference in the whole housing and mortgage market because there's some estimates out there that three million homeowners are on track to face default this year.
PRESTON: None of us should look at this at the only solution out there. I think it's very important to recognize that at FHA which is part of HUD, we've already expanded our refinancing programs to begin helping people who have already gone into delinquency and we estimate that since we launched the expansion of our program at the end of August last year, by the end of this year we'll have refinanced about a half a million people. In addition to that, the industry has come together through something called the Hope Now Alliance and they've announced that they've helped modify or restructure almost two million loans already. Those are borrowers that they would have expected to go into foreclosure. So there are many efforts underway. Banks are working. FHA has a program that's much bigger than the one Congress passed already in place. So this is - we think this could help people on the margin. It's one more step forward but if people are having an issue right now repaying, they shouldn't wait for this bill. They should come to fha.gov or hud.gov, find a counselor and let us help you work out a better situation between you and your lender.
GHARIB: The FHA, the Federal Housing Authority, do the financial problems at Fannie Mae and Freddie Mac put more pressure on the FHA to extend mortgage credit and is it prepared to meet these new demands?
PRESTON: Well, I would say that FHA is really incremental product to what Fannie Mae and Freddie Mac are doing. We work together as two parts of the market place so there's some overlap at times, but I think we're really an incremental player. Now the other thing I'd tell you is our demand for refinancing has already increased five times since what it s two years ago. Our demand for new mortgages for people buying new homes has gone up a multiple. So our volumes have already increased very dramatically. We're handling that volume and we think this bill would increase it further, but we're prepared for the increase in scope and responsibility at FHA.
GHARIB: One thing that's worrying a lot of taxpayers is that all this credit risk that the FHA is taking on, that at some point that they're going to be on the hook for all of it.
PRESTON: Well, I think that's a very fair concern and people should be concerned about that. However, FHA has a 73-year history of assessing risk and ensuring loans based on some tried and true methodologies. Our delinquency rates this year are no higher than they were last year and I think there are very few lenders or insurer out there that can make that claim right now.
GHARIB: Just to wrap it up, what do you think is the single most important thing that policymakers need to do that would help the housing market going forward?
PRESTON: I think policymakers need to be focused on the economy and growth. All of these provisions are helpful on the margin, but the bottom line is we need new home buyers in the marketplace buying up this inventory and we need a strong economy to be able to do that. I think housing is a very essential underpinning of our economy and so it's a much broader issue than just what any one bill or any one program can do.
GHARIB: All right. Mr. Preston, thank you very much for your time.
PRESTON: Thank you.
