“The housing crisis is the fault of predatory lenders, irresponsible buyers and careless Wall Street investors. I’m particularly amazed that people (on Wall Street) who had all these sophisticated models and were trained to analyze all this stuff bought it and distributed these loans around the world,” said HUD chief, Steve Preston, in a town hall forum meeting in Seattle.
Preston took over the Housing and Urban Development agency (HUD) in June after leading the Small Business Administration.
The HUD Chief told the crowd that McCain’s plan “is troubling” and he had “grave concerns” in response to Republican presidential candidates plan to have the government pay the difference between the balances of troubled mortgages and what homes are now worth.
More from HUD and Preston in the Seatlle PI:
“I don’t think we can suffer that big of a loss. … That is not invested money. That is just a loss.”
But the administration’s plan, which includes buying up troubled mortgages, is an investment, Preston said. “The people who will be buying these will spend a lot of time looking at the underlying value of those assets.”
The government needs to step in to get the financial system unstuck, he said. “Unless all this stuff functions well, we can’t get a mortgage for our house, we can’t get a loan for our car, in some cases we can’t send our kids to college.”
Preston said a friend who owns a small business held off on a planned expansion because he was afraid he wouldn’t be able to get the credit he needed.
“There’s actually a lot of money out there,” he said. “It’s just not moving.”
Lenders and mortgage servicers are doing more to rework troubled loans, Preston said. Many are working through programs that move people into mortgages insured by the Federal Housing Administration, which is part of HUD.
The idea is to help people who could afford their homes if they had the right mortgage, Preston said. But he said he did not support “cram-downs,” where judges reduce loan balances against the will of lenders.
“It sort of violates a contract between a lender and an individual, and I think we all get concerned about the precedent it would set,” he said.
“Secondly, I have a concern about the burden on our court system.”
McCain’s plan is a good one if directed to the right people. The people who should primarily benefit from a plan like his are those who never fell behind on their current mortgage but cannot refinance into a better loan because they owe more than their home is worth now. Check out the poor souls who bought homes responsibly in late 2005-2006 and had to pay what we now know were artificially inflated prices, especially so in CA, FL, and throughout the Northeast. Who is here to help out those people? All we hear on this site is the poor borrower who was duped into a subprime or exotic loan they really couldn’t afford in the first place. It is those people and the lax standards from the industry that artificially inflated home prices for these borrowers that are now seeing their home values assaulted. Just try looking for a refinance when underwater. McCain’s plan would help the responsible borrower get back to the negotiating table for a better loan term or help the person who wants to sell it in a short sale.