HUD Secretary Discusses Refinancing Plans
ROBERT SIEGEL, host: President Obama's speech last night was about jobs and unemployment, but it also touched on some other economic problems. Here's what the president said about housing.
President BARACK OBAMA: And to help responsible homeowners, we're going to work with federal housing agencies to help more people refinance their mortgages at interest rates that are now near 4 percent.
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OBAMA: That's a step...
SIEGEL: And that's a step, he said, that can put more than $2,000 a year in a family's pocket and give a lift to an economy still burdened by the drop in housing prices. Well, joining us to talk about what the president is suggesting here is Shaun Donovan, the secretary of housing and urban development. Welcome to the program once again.
Secretary SHAUN DONOVAN: Great to be with you, Robert.
SIEGEL: Who would qualify for this administration plan to get a refinanced mortgage, and why couldn't those people refinance without help from the federal agencies?
DONOVAN: Well, specifically, the president talked about people who can pay their mortgages, they've been current on their mortgages, but even with record-low interest rates today, close to 4 percent, haven't been able to refinance to take advantage of those rates, typically, because they owe more on their homes than the homes are worth. And that makes it very difficult for them to get a refinanced mortgage.
SIEGEL: And those people who, as you say, are underwater on their mortgages, there would be new instructions to the government-sponsored enterprises to say you can refinance?
DONOVAN: Here's the issue, Robert. We've already been able to help almost 900,000 families refinance who are in that position. The problem that we found is as we put this effort, which we call HARP, into effect, what we found is because our mortgage system was so complicated, because we had sliced and diced these mortgages in different ways because we had one company servicing them and others that owned them, there are lots of barriers that are standing in the way of more families refinancing. Barriers like the risks of, what we call, put-backs or lawsuits that might come at the new lenders for mistakes that the original lenders made on the mortgages that we would refinance. That's one example.
There are fees that have been applied particularly to the riskiest mortgages that stand in the way. We also have the problem that while your first mortgage may be able to be refinanced, you have a second mortgage, and that second mortgage holder has stood in the way of refinancing. Those are the kinds of problems that we've seen. So what the president said last night, he's charged us in the economic team to work with these federal agencies, Fannie Mae and Freddie Mac, to break down those barriers.
SIEGEL: I just want to pursue that last case, the second mortgage. In talking with people in recent days who proposed various solutions to the housing crisis, I've heard a lot about the problem of second mortgages or home equity loans. Of those people, people with such loans, I gather, 40 percent, according to recent data, are underwater, and some people say you've got to tell the banks just to write-off those second loans. They were riskier loans. They got a higher interest rate. And if you want to help people with the first mortgage, forgive the second one. Is that the approach that you would take?
DONOVAN: Well, here's the challenge, Robert, is that we absolutely believe the banks need to wake up and start to recognize the losses on that. But, frankly, we don't think that the taxpayers should have to absorb those losses. We think the banks who made those mortgages took risks knowingly, so there are a number of things that we're doing to try to streamline and increase the write-downs of those.
There are plenty of examples where we're pushing the banks and requiring the banks to do that through lawsuits, through settlement discussions that we're having with the state attorneys general. But at the end of the day, the banks need to step up and start doing more of that. And we're going to continue to work on pushing them through this process that the president charged us with last night.
SIEGEL: Just to pursue that a little bit further, the Financial Services Roundtable, an industry group, told us in a statement that their members are committed to helping at-risk homeowners whenever possible. But one former Obama White House official, Peter Swire, said that the problem with second mortgages is that a lot of the banks keep them on the books. They haven't sold them off and sliced and diced them. Those are real loans that they would write-off and take real losses on.
DONOVAN: Absolutely. But they have to recognize today that those loans are never going to be worth what they were originally made for. And, frankly, they have a much better chance of recovering on a portion of those loans if they can put that homeowner in a place where they can afford to stay in their home and afford their payments. And so we made progress on that, but we're going to take additional steps through this process to push the banks and to get them on board and doing that.
SIEGEL: Secretary Donavan, thank you very much for talking with us.
DONOVAN: Great to be with you.
SIEGEL: That's Secretary of Housing and Urban Development Shaun Donovan.
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