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[ Silence ]
>> The foreclosure phenomenon that we're having is a product
of excess leveraging that sort of has
to be backed out of the system.
From a public policy point of view I think you have to keep
in mind that while a fairly significant percentage
of mortgages are going into foreclosure maybe 3 or 4%,
you know, that means 96%
of people are still making their mortgage payments
and doing what they agreed to do by contract.
So when you think about public policy that might bail people
out of that situation I think you have to really worry
about what sort of signal is that sending
[ Silence ]
>> We do have a housing glut.
I think you -- and what does that mean is that the number
of houses that are available for sale exceeds the number
of people that are looking for houses, so supply
and demand are sort of out of balance right now.
This was caused --
this particular situation that we have is caused by the fact
that lots of houses are coming back on the market
because of foreclosure.
It's also caused by the fact
that builders are still building houses.
That speculative building cycle
that we had going is still going on.
I mean you can't just stop in the middle of a house.
And many of them had a lot of money tied up in land
and there saying, well, I might not make as much money
as I thought I was gonna make when I started this project
but I'm surely not gonna make any money if I just stop.
[ Silence ]
>> The problem, as I see it,
isn't that we had mortgage contracts
that had adjustable rates and interest rates changed, because,
in fact, the interest rates
that adjustable rate contracts would be indexed off
of right now are going down.
The problem was that when we had adjustable rate contracts
where lenders required nothing down or lenders did not require
that you certify or document your income.
Well, you had these contracts that they had funny sort
of names where the income was unknown, there was no
down payment, you could actually borrow more
than the house was worth at the time and then
at some distant point out here maybe as far, you know,
as far out as 2 years then your interest rate was gonna go
from 0 to some positive number
and that positive number was built-in to the contract
so that regardless of what had happened
to market interest rate your rate was gonna go
from a fairly low rate to something that wasn't 0.
So you see that's -- it's wrong to try
to say all adjustable rate contracts,
adjustable rate mortgages are bad,
but some of these things really flew in the face of logic.
[ Silence ]
>> Just like when you're investing in the stock market
and you would say right now, well, there's a lot of bargains
out there but people might say, well,
that price is gonna be even lower
if you wait a couple more months 'cause we haven't hit
the bottom.
Same mentality would apply to the housing market.
So I think in some parts
of the country home values are gonna continue to decline.
In other parts of the country home values are going
up at double digit rates.
So the answer to your question really depends on which part
of the country you're sitting in, but definitely in Florida,
Las Vegas, Arizona, California, places where home values went
up rapidly and now they're coming back down rapidly.
The next year or so probably will be --
you will have opportunities to get houses for quite a bit less
than what they were worth a couple years ago.
[ Silence ]
>> In some parts of the country where the median value
of a house is like $500,000 you can see
that there was a restriction on that secondary market
for those sort of mortgages.
Now that restriction is not gonna be binding
and that should help people going
into those markets still buying expensive houses
but they weren't as expensive as they used to be.
So that makes it so the market might work.
Now, one of the things that could slow that down is
that lenders are substantially more risk averse now
than they used to be.
So now maybe I could get a mortgage for $550,000
and there's a secondary market for that
but my lender now might require a much higher interest rate
than what I was able to get before, right,
so I'm still gonna probably face some restrictive terms.
So, you know, things don't stay the same as we go through some
of these policy changes.
Good on the one hand but there could be greater difficulty
getting credit on the other hand.