Housing and Urban Development Secretary Shaun Donovan said in an interview for Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend, that it’s too early to “declare victory” even as the housing market shows progress two years after the credit crunch drove down home prices.
(This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy.)
AL HUNT: Secretary Donovan is with us in our studio. Mr. Secretary, thank you so much for being with us today.
SHAUN DONOVAN: Al, it’s great to be with you.
HUNT: Last month, as you know, pending sales of existing houses unexpectedly climbed. Does that mean the housing slump is over?
DONOVAN: Al, I think it is too early to certainly declare victory or to say that we’ve got a double dip or anything like that. We really right now are very focused on watching this market, making sure that we do everything we can to implement a set of initiatives that have worked to keep interest rates low, that have helped millions of borrowers stay in their homes.
What we’re doing is watching the market very, very closely to make sure we don’t see any further decline. We were pleased with the recent numbers you talked about, but obviously we saw the month before, home sales -
HUNT: Which were not good.
DONOVAN: - dropped more than expected. Fundamentally, what’s driving these problems is making sure we can put people back to work. And when we came in, what was driving the housing market was bad loans. Today, it’s unemployment. And so -
HUNT: What do you think is the danger? You mentioned double dip. How do you assess the danger that foreclosures continue to mount and depress home prices and that we go into a double dip? As you know, housing has led seven of the last eight recoveries.
DONOVAN: Absolutely. There is no question that the level of debt that people built up on their homes, that the country built up, was unacceptable. And that we need to continue to help folks bring down that debt; that’s a serious issue.
But let’s be clear that what is available to folks today in terms of being able to stay in their homes, the modifications, all of the work that we’re doing is helping to stabilize this market. If you look at where we were when we came into office, 30 straight months of decline in house prices and folks expected the market to drop another 5 percent to 8 percent. That didn’t happen. In fact, prices picked up slightly over the last year.
So, we really have worked to stabilize the market. Folks added $1.1 trillion in equity to their homes. And so, we’ve made progress, but we do have a long way to go.
HUNT: Let me ask you about another part of what you do. Your department got a chunk of the stimulus money last year. Republicans, as you know, almost universally say it hasn’t worked; it’s been an abject failure. Can you give me two or three important success stories, in your view, of the stimulus money?
DONOVAN: Let me give you a few examples. I was in New Orleans this past weekend - the fifth anniversary of Katrina. And while the city and the coast still have a long way to go, there are thousands of people who have been able to move back into homes - affordable homes - thanks to the stimulus act. We saw the economic crisis really force to a halt thousands of units of affordable housing around the country. Those are moving again because of the stimulus act. That’s one example.
Another example, some of the most vulnerable families at risk of homelessness. From the Recovery Act, one of the things we’ve learned is that it’s often better for the family and cheaper to prevent somebody falling into homelessness, and often you can do that with one month’s rent, a utility bill. And so, in the stimulus bill for the first time ever we had a very flexible tool for homeless prevention that has now helped almost a half a million families around the country avoid homelessness.
HUNT: Fannie and Freddie lost $150 billion; could go a lot higher than that. If you need to have some government role there, what do you do to protect taxpayers from losses like that?
DONOVAN: Well, the first thing you do is make sure that Fannie and Freddie aren’t making bad loans. And through the conservatorship, which we have supported, Fannie and Freddie are making better loans today.
And this is one of the things that I think people miss about this whole issue, is there are those who would argue we need to end their involvement in the housing market today. What that misses is that what’s driving these losses we’ve seen at Fannie and Freddie are historic loans - loans that were on the books before this president ever came into office, before they went into conservatorship.
And if we were to take precipitous action that would disturb the market - we all know the housing market is fragile today. If we took actions that sent that in a bad direction, where we could end up is with significantly larger losses for the taxpayer. And so, we’re very focused in the short term on making sure they’re making good loans, and all evidence is they are doing that today.
Going forward, we have a thoughtful process that we’re engaged in - myself, Tim Geithner, the broad economic team - looking at what the future should be. And I think there - we had a convergence recently where it was interesting. There was pretty broad agreement that having some ability in the crisis, like we’ve been through, to have that backstop available is critical.
HUNT: Experts like Barney Frank and I think you, too, have said that maybe we have too much emphasis on ownership and not quite enough on affordable rentals. Can you give us an example of a couple of things you’re thinking about that would tilt that balance back more towards rentals?
DONOVAN: This is a very important point, and I’m glad you raised it, Al, because when you really step back from this issue, what you see is that we haven’t had a balanced housing policy in this country and that we do need to rebalance our priorities. Part of that, frankly, is that we have a president who talks about rental housing and is focused on rental housing as an important part of the equation.
Whether it’s funding for Section 8 vouchers or a range of other tools that help renters be able to afford decent, safe housing, there’s been a rebalancing of priorities and more of a focus on those programs that have been cut dramatically to the point where you’re seen waiting lines around the country for that kind of assistance.
I think the other thing that we need to look at is this ability to give local communities the ability to create good rental housing out of the stock of foreclosed homes that we’ve seen around the country, and make sure that we’re both absorbing the supply of foreclosed homes while at the same time making sure that we have good rental housing.
We’ve actually put $7 billion through the Neighborhood Stabilization Program into helping local communities, particularly the hardest-hit communities, buy up that housing and convert much of it to rentals.
HUNT: One final question.
HUNT: $80 billion a year for a home mortgage deduction. Most economists say it’s inefficient, it tilts to the rich, it doesn’t produce much additional home ownership. Would you consider eliminating or shaving that and putting those resources into deficit reduction and other housing programs?
DONOVAN: Al, this is an important subject. It’s also one that I think is a question for a longer-term view. My concern, the president’s concern, right now is we have to make sure this fragile housing market recovers.
HUNT: Would you agree it’s a pretty inefficient subsidy?
DONOVAN: I think that there are plenty of places in our tax code and more broadly that we could look for answers. I think - the president has set up a fiscal commission to do exactly this, to look broadly at it.
I don’t think, however, given where we are in the housing cycle today, given the fragile recovery that we’re seeing, that it’s a productive discussion right now. I think we need to focus on the short term.
HUNT: Shaun Donovan, thank you so much for being with us today.
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#<678941.54918.104.22.168.14900.25># -0- Sep/03/2010 23:14 GMT