"Commentary"-Housing Market Repairs
Monday, December 31, 2007SUSIE GHARIB: Tonight's commentator has some advice for fixing problems in the housing market. Here's Glenn Hubbard, Dean of the Columbia Graduate School of Business and Former Chairman of the White House Council of Economic Advisers.
GLENN HUBBARD DEAN OF THE COLUMBIA GRADUATE SCHOOL OF BUSINESS AND FORMER CHAIRMAN OF THE WHITE HOUSE COUNCIL OF ECONOMIC ADVISERS: Federal Reserve and Treasury officials have been studying ways to avoid a repeat of today's sub-prime mortgage woes.
That's great, but today's housing troubles have led to a credit crisis with serious implications for the economy. The Bush administration's recent housing plan is a good beginning, but it is only that. Going Further, the F.H.A. should be given more leeway to make larger loans to homeowners who live in their own home and who can either make a larger down payment or document their income.
The policy goal should be to see that capable homeowners are not forced into foreclosure because they cannot refinance a sub-prime adjustable rate mortgage, one that was never intended to be longer-term financing. Expanding the F.H.A's role also allows these new loans to have better credit analysis to make sure that borrowers can make their payments.
And investors in the existing mortgates will get cash from the refinancing for loans that were made to good borrowers. Truly bad loans will be allowed to default, some investors in existing mortgages will lose money, but policy should focus on credit availability to homeowners, not on shielding investors from the consequences of bad decisions.
The F.H.A. route requires work. We should push banks to get back into the mortgage origination business with their large branch networks. Higher origination fees can accelerate the process. While there will be pain for many investors, we can halt the spread of the housing crisis. The time to act is now. I'm Glenn Hubbard.
