Economist Examines Housing Bill's Impact
ROBERT SMITH, host:
Homeowners this morning have to be wondering how this bill will affect them. That's why we've called Nariman Behravesh. He's chief economist and executive vice president of the forecasting firm, Global Insight. Good morning.
Mr. NARIMAN BEHRAVESH (Chief Economist and Executive Vice President, Global Insight): Good morning.
SMITH: So we just heard Brian Naylor's report on the Housing bill. And clearly, this helps people who are in foreclosure. But how will the average American be affected by it?
Mr. BEHRAVESH: Well, I think the big threat that's hanging over the U.S. housing market right now is a further freefall in home prices, which would exacerbate not only the subprime crisis and the credit crunch, but would mean serious problems for many homeowners who are basically hanging on by their fingernails. Namely, the equity in their homes would be lower. Their net worth would be lower. This is an attempt to put a floor, if you will, on home prices.
SMITH: Well, prices, of course, respond to the psychology of the market. How does this bill actually help this? Does this make people feel more hopeful about the housing market?
Mr. BEHRAVESH: I think it does. It does a number of things. One is it makes the financing more easy for house buying and refinancing, as Brian was mentioning, in the sense that it will reduce the big wave of foreclosures we're having, which, of course, has had a very depressing effect on home prices. But also by providing incentives for first-time homebuyers, it will mean many buyers who've been sitting on the sidelines will come into the market, and that will help to bolster prices.
SMITH: Does the bill specifically help low-income Americans stay in their homes?
Mr. BEHRAVESH: Certainly it will in the sense that those are the homeowners who are the most stressed and who are the ones that are most likely to foreclose. So indeed, it will help the struggling homeowners who are the, sort of, the lower middle class poorer families.
SMITH: Can this bill have an effect on the economy as a whole, or is the slowdown we're seeing more global than that?
Mr. BEHRAVESH: Well, there's a broader base slowdown occurring in the U.S. economy, but the real problem is the housing sector. That's really what's creating this serious downturn in the U.S. We're in the worst housing recession since World War Two. And so, if we can bring about a bottom, if you will, to that sooner rather later, that will definitely help bring about a turnaround in the U.S. economy.
SMITH: But this doesn't do anything for all of those bad loans that are still out there that a lot of these banks and lenders don't know about, is that right?
Mr. BEHRAVESH: That is correct. What it does do is it makes it a little easier to refinance them once we find out about them.
(Soundbite of laughter)
Mr. BEHRAVESH: But yes, it doesn't do much for the banks holding loans - bad loans that they don't know about, as you say.
SMITH: Some of the bill's opponents objected to it because they created this rescue plan for mortgage giants Fannie Mae and Freddie Mac. Do you think there can be some negative impact from the legislation?
Mr. BEHRAVESH: I think in the near term, the answer is probably not. The bigger question is what do we do about Fannie Mae and Freddie Mac. I mean, clearly there were some excesses, some problems in the past. That's, I think, what some of the senators were commenting about. So hopefully, with this new regulatory body, the regulation, the reform of these entities will proceed. Because they've been a lot of good. But clearly, there also have been some serious problems in the past.
SMITH: Nariman Behravesh is chief economist and executive vice president of the forecasting firm, Global Insight. Thanks for answering our questions.
Mr. BEHRAVESH: My pleasure.