Transcripts

"Commentary"-Home Prices Are The Foundation For Correcting The Crisis

SUSIE GHARIB: Tonight's commentator says stabilizing home prices is key to fixing the financial crisis. He's Glenn Hubbard, dean of the Columbia University graduate school of business and former chairman of the Council of Economic Advisers.

GLENN HUBBARD, GRADUATE SCHOOL OF BUSINESS, COLUMBIA UNIVERSITY: No one can accuse economic officials of idleness in the current financial crisis. But a critical problem is not being addressed. Policymakers should take action to blunt expected future declines in house prices, which continue to drag down the balance sheets of households and financial institutions and we should do so in a way that avoids a near-term fix with bad long-term consequences. Consensus forecasts predict additional house price declines of 15 percent over the next 18 months. If we could lower mortgage interest rates by one percentage point, we could blunt this decline. And we can accomplish this change without costly new subsidies. Present public policies, by drawing assets toward other financial institutions and away from the housing GSEs, are raising GSE funding costs and mortgage rates. Financing mechanisms are available for the government to lower current borrowing costs for Fannie Mae and Freddie Mac and lower mortgage rates and raise house prices. There are two immediate beneficiaries of lower rates for 30-year fixed-rate mortgages: existing borrowers currently in adjustable rate mortgages with higher rates and complicated step-up provisions and new first-time homebuyers. And such a plan could offer a $100 billion annual stimulus. We can slow down falling house prices and to stop the financial crisis, we must. I'm Glenn Hubbard.