MADELEINE BRAND, host:
OK. So, the focus is Wall Street, but the heart of this problem is homeowners and the people who are getting foreclosed on. NPR's Chris Arnold is here now. And what does this federal bailout mean for them?
CHRIS ARNOLD: Hi, Madeleine. Well, this might be good for them and I think this is really interesting. The first goal with all this is to calm down the system, stop the stock market from free-falling, and you know, the credit markets from freezing up. But you know, we're on track to see upwards of a million foreclosures this year. Those numbers keep snowballing and once we settle the markets down, there is going to be a chance here for those people to be dealing with the government, instead of this angry debt collector who's representing a bunch of investors who own their loan. And you know, the hope is that would be better for them.
BRAND: Well, how would it be better for them? Because they're still going to owe all this money. And so, how would the government treat them differently?
ARNOLD: Well, yeah, I mean, they are still going to owe them money and the details are just emerging. But you know, first of all - just the scale of this thing, I mean, 700 billion dollars, that's a lot of money and I talked to one economist this morning. He thinks the government might be able to buy up the bulk of these problem loans in the system with that much money. And the companies that are managing these loans for the homeowners that own them and are facing foreclosure, they've just been totally paralyzed by the sheer scale of this problem, and they really haven't been doing their job.
BRAND: So, Chris the idea here is that the government will do a better job handling these loans than the market place?
ARNOLD: Yeah, and you know, that's blasphemy for some people. But I mean, you have to recognize that the market is broken here. Something is just not working right and you can see that when you just do the basic math on the situation. I mean, you've got a couple of million people facing foreclosure some of them - there's nothing you can do. You know, maybe they lied on their loan application. They knew they were lying, they don't have a job, it's just totally hopeless, and you have to write off their mortgage.
But you know, there's a lot of other people out there, who - it's a much grayer area, they have a job. They're kids are going to school down the street. They want to keep the house. But you know, they just borrowed a little too much money. Or their mortgage broker lied to them, and told them it was a fixed rate loan, and actually it was an adjustable, and now it's a 12 percent, and they can't afford it, you know. And there's 12 other things that could be going on. But ultimately they can pay something and it's often - it often can be in the best interest of the investors that own the loans and the homeowner, if you cut him a deal.
You know, if you say well can you pay five or six percent interest, we'll take a little off the top. Then at least you don't have a foreclosure. You lose a lot more money, you know people break into the house, rip out the pipes, I mean, things get ugly, and everybody loses. You just can tell that the system's broken, because a lot of those work-outs as you call them, just aren't happening.
BRAND: So, Chris, where does it say in this 700 billion dollar bail out proposal that there will be help for home-owners, to either renegotiate their loans or to avoid foreclosure?
ARNOLD: Well, it doesn't really say that yet. I mean, this is all still getting written and put down on paper, and the Democrats in Congress, you know, some law makers want to see more of this down on paper. You know, so we want some real guarantees that this is going to include more help for homeowners. But you just kind of - common sense here suggests that if the government's buying up a lot of these loans, and it owns these loans now. I mean, it's in the taxpayers' best interest, it's in the interests of the Treasury that they do some work.
I mean, you can't hand somebody their house and make them pay 20 dollars for it. But somebody owes $400,000 and they can't really afford that, but they can afford 325, if they pay a five percent interest rate. That costs the government a lot less now, if it does that loan work-out. So, therefore it just makes sense that, if the government's able to get up and running and do it, it would be in everybody's best interest that more of these loans start getting worked out.
BRAND: NPR's Chris Arnold. Thank you.
ARNOLD: Thanks, Madeleine.
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