Lawmakers Try To Prevent The Housing Bubble From Bursting
Wednesday, September 13, 2006PAUL KANGAS: The slowdown in the housing market is causing concern on Capitol Hill. So today, the Senate Banking Committee began a series of hearings looking at whether there`s a housing bubble that`s about to burst. As Stephanie Dhue reports, lawmakers heard that the market will lose some air, but probably won`t deflate entirely.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Home prices have increased 56 percent nationwide over the last five years. Now lawmakers are worried that the run-up will be followed by a sharp decline.
SEN. JIM BUNNING (R) KENTUCKY: If the market has moved because of unsustainable or artificial forces, we may be in for a rough ride.
DHUE: Rough ride or not, the housing market is slowing. Economists predict an 11 percent drop in new and existing home sales for both this year and next, and with that, a drop in home price appreciation.
TOM STEVENS, PRESIDENT, NATIONAL ASSOCIATION OF REALTORS: We will see a continued decline in house values. We certainly have not bottomed out yet.
DHUE: Decreasing home values and increasing interest rates are already squeezing some homeowners. Mortgage delinquencies and the rate of new foreclosures are both up from a year ago and some lawmakers are worried the increase in interest-only and option-adjustable-rate mortgages could put more homeowners in a bind.
SEN. PAUL SARBANES (D) MARYLAND: Are we facing the potential of a sort of a major crisis of defaults and foreclosures?
DHUE: Regulators say the answer to that question is probably not.
RICH BROWN, CHIEF ECONOMIST, FEDERAL DEPOSIT INSURANCE CORPORATION: Those loans have been largely securitized in private asset-backed securities and sold to investors around the world. I think the consensus of mortgage professionals and economists is that those risks have been spread around in a fairly efficient manner.
DHUE: And mortgage bankers say most homeowners should be able to cope. DOUG DUNCAN, CHIEF ECONOMIST, MORTGAGE BANKERS ASSOCIATION: People who have loans that are about to adjust upward see that fixed rates are roughly the same and in some cases lower than what their adjusted rate will be on an adjustable, so they refinance out of that adjustable into a lower payment fixed rate loan.
DHUE: But some observers say if homeowners do struggle, lawmakers may want to step in.
ANDY LAPERRIERE, MANAGING DIRECTOR, ISI GROUP: I think we are just at the beginning of the stage of the housing correction and we`re going to see in the future, Congress increasingly getting on the regulators asking them to protect the consumer.
DHUE: We should see how all this plays out in the next year and a half. That`s when economists predict the housing market will bottom out. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
