Transcripts

"Commentary"-Fixing the Foreclosure Crisis

SUSIE GHARIB: U.S. home forecloses went through the roof in April, up 62 percent from a year ago levels. According to real estate data firm Realty track there were forecloses on 148,000 homes last month. While those rates are expected to remain high, tonight's commentator has a few thoughts on what lawmakers can do to ease the problems. He's Mark Zandi, chief economist at moody'seconomy.com.

MARK ZANDI, CHIEF ECONOMIST, MOODY'SECONOMY.COM: Mortgage foreclosure are mounting as is the political pressure to do something about them. Policy makers need to respond given the financial pain, lower income households and the community's in which they live are bearing. Rising foreclosures also threaten the fragile housing market and the economy.

Here are a few suggestions. First, policy makers should resolve some of the three accounting tax and legal hurdles mortgages are struggling to overcome as they try to modify those loans headed to foreclosure. The majority of borrowers will ultimately meet the financial obligations if given some forbearance. Second, policy makers should grant the Federal Housing Administration temporary authority to extend its lending activities to fill the void left by exiting lenders. The FHA was the source of credit to lower income households long before the sub-prime industry.

Third, policy makers should not grant a moratorium on foreclosures. This will severely disrupt the origination of new loans and will only delay foreclosures not forestall them. Fourth, policy makers should not define who is suitable to get a loan. Given rapid financial innovations, who is deemed suitable today may not be considered suitable even a year from now. A suitable borrower cannot be legislated.

Policy makers have an opportunity to correct some of the clear wrong in the mortgage market and while it would be hard to make good policy when the emotions of families losing their homes are washing over the political process, they must work with all deliberation. This is Mark Zandi.