ALEX COHEN, host:
From NPR News, it's DAY TO DAY.
As we heard earlier in the program, President Bush extended a helping hand today to Americans on the verge of defaulting on their home loans. But do these borrowers truly deserve help? A new study by the Mortgage Bankers Association says not necessarily.
Here to explain is MARKETPLACE's Sam Eaton.
Sam, what exactly did this report find?
SAM EATON: Alex, it looks at places or it found that in places like Las Vegas, Arizona and Florida, where a lot of the speculation has taken place, in this places a quarter to a third of the defaults that are now happening are from investor-owned properties. In parts of California, it's about one in five. These houses and condos are owned by everyone from real estate developers all the way down to amateur speculators, trying to make a quick buck flipping homes. Now that the market is slumped, many of these investors have put little or no money down on their loans, can't get rid of their properties. And according to the Mortgage Bankers Association, many are simply walking away from them and letting the banks clean up the mess.
I talked to real estate economist Karl Case at Wellesley, and he says the fact that so many speculators are now defaulting on their loans shouldn't come as a surprise.
Professor KARL CASE (Economist): I was in Florida a few years ago and I was picking up a car at a rent-a-car counter and the clerk said to me, what are you doing down here? So I'm giving a talk. And he says, on what? I said real estate. He said, oh, I'm in real estate. I said, really? What do you do? He said I own 21 condominiums. And that made me worry.
COHEN: Right. And then there's the entire program on A&E called "Flip This House," which is all about flipping properties. So I mean are all these speculators, like the guy in Florida, to blame for what's going on now with the mortgage industry?
EATON: Alex, you know, there is slight irony in the fact that this report, which basically is kind of shedding the blame of real estate speculators for the record number of defaults right now, is coming from the trade group that represents the mortgage industry, which of course issued those loans. But the bottom line here is that there's plenty of blame to go around, especially now that home prices are no longer making those double-digit gains.
There weren't many people calling for tighter lending standards back during the boom. A real estate expert that I talk to said the problem was really - it's really the market. With more than a decade of gains and housing, people and lenders begin to think that there was no end in sight, and now of course that's proven to be wrong.
COHEN: Let's talk about this aide package announced today. Who actually does deserve help at this point?
EATON: It's - you know, this is a really good question. And you can distinguish the kinds of loans made to people who live in their homes from those made to investors. So it is possible to single out those who, some would say, are the most deserving of the government's help. But economically, I think that distinction matters less. From the economy standpoint, foreclosures are foreclosures and the market is going to react accordingly. And the more people default on their loans, the more everyone takes a hit as home prices fall.
COHEN: Thanks so much, Sam.
That's Sam Eaton of public radio's daily business show MARKETPLACE. It's produced by American Public Media.
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