Andrew Jakabovics, Associate Director for the Economic Mobility Program

Is the housing crisis over?

The crisis is far from over, and so as people have seen already price declines in their homes, experts predict that prices could go down by another 10 percent, or perhaps even more. We're at risk of serious over-correction, actually, in the housing markets, and unless we find ways to help borrowers at risk refinance, those homes are going to go on to the market as foreclosures and further depress local house prices. So this is unfortunately far from over.

What does the congressional legislation do and will it help?

So what the congressional legislation does is it creates a way for lenders to help their borrowers refinance into FHA loans, which are fixed interest rate loans at a sustainable level. And to do that lender have to basically write down the existing loans based on the current value of the property. In many cases, loans were offered at the height of the market, and so there are going to be some losses taken by the lenders, which makes it not a bailout to them as they take a pretty steep haircut in many cases. And they offer a new loan based on 90 percent of the current value of the property. The lender gets an FHA guarantee, so if the borrower defaults, they're guaranteed their payments, and the borrower gets a loan that they'll be able to sustain for the long term and so are no longer at risk of foreclosure. And so what that does is it reduces pressure on local house prices, because properties falling into foreclosure depress local values, and so y getting folks into loans that they can sustain, you also help the neighbors of those folks, as well.

What's left to be done?

Well, assuming we can get the new program up and running quickly and to scale quickly, the other piece that remains to be done, that Congress has already taken up, at least in the House, and in small part in the Senate in an earlier bill, is neighborhood stabilization, which provides funds to local communities to buy up foreclosed properties, because, again, these foreclosed properties drag down local house prices. While the FHA refinancing opportunities presented in the latest House and Senate bills allow us to address the front end of the problem—that is preventing properties from falling into foreclosure in the first place—we still need to deal with the large number of homes that are already in foreclosure and are owned by banks. It's estimated that in Southern California about 40 percent of all current home sales are sales of properties that taken in foreclosure. And so if we can get local housing markets up and running again by stabilizing neighborhoods, buying up the bank-owned properties in bulk, getting them out of the inventory, then local housing markets can begin to work properly and well again.