This is a rush transcript from "Your World," October 27, 2011. This copy may not be in its final form and may be updated.
NEIL CAVUTO, HOST OF “YOUR WORLD”: Are the banks giving you a hassle about your late payments? Just go bankrupt. Some Democrats want underwater homeowners to declare bankruptcy so they can stop making interest payments on their loans for five years and maybe qualify for rescue help, that sort of thing.
Critics are arguing that the plan is not fair and that people who pay their mortgage every month are really getting screwed in the deal like this. Democratic Congressman John Garamendi supports this plan, says that is not a fair comparison.
Congressman, what do you tell those who are dutifully paying their mortgage underwater or no?
REP. JOHN GARAMENDI, D- CALIF.: Well, they are doing the right thing.
The bankruptcy issue isn’t going to pass this Congress. But if it had, this problem would have been solved long ago. But let’s take a look...
CAVUTO: Wait, wait, wait, how would it be solved if you allowed people to go bankrupt? What would that do?
GARAMENDI: It would have caused the banks very, very early on to rewrite those mortgages, rather than to face a bankruptcy. That is what would have happened, but that was months ago.
CAVUTO: So you’re saying, if everyone did this en masse then the banks would have had no choice to sort of redo this, right?
GARAMENDI: Well, absolutely true.
But let’s look to the future. The bankruptcy thing is not going to pass here, but what will pass and what already has passed is a program that the president has taken advantage of and has made about a million homeowners available to those who have been actually paying their mortgage, but that are deeply underwater and unable to refinance because they are underwater.
It’s a very, very good program that will allow them to reduce their monthly payments and be able to stay in place. And the second thing that he has done is the American Jobs Act. Ultimately, if a person is not working, they will lose their home. So this gets people back to work. And that is what the American Jobs Act does for well over a million and half, perhaps as many as two million Americans out there who will be able to go back to work and pay their mortgage.
(CROSSTALK) CAVUTO: We don’t know that for sure. But hopes springs eternal.
But I do want to ask you this, Congressman. We do know in the history of some of the mortgage rewrite, rework programs, is that they don’t work. A lot of the same people who were on the verge of defaulting or outright defaulting do so all over again.
I know you have a great deal of compassion and heart for those who are in duress, but do you do more harm than good and dig them even deeper in debt and those who supposed to help them out deeper in debt for nothing?
GARAMENDI: Well, actually, if you can stay in your home that is a better deal for the neighborhood. It’s certainly a better deal for the person that is in their home, rather than to be on the street and for that house to go into foreclosure and become a problem for the whole community.
CAVUTO: It has already happened. Are you arguing it would even get worse than the 50 percent haircut we have seen in home values?
GARAMENDI: It could, no doubt about it. And certain neighborhoods, absolutely, it will happen, and there are two things here.
One, if we can keep people in their home by allowing them to refinance -- and the reason they cannot refinance is that they don’t have any equity left because the value of the home has dropped way below the value of the loan. The president’s program allows a refinancing under that circumstance when people are actually making their current payments.
That will put money -- that is going to save those people money. They can then put that money back into the economy in some other way. The only loss here is an ephemeral loss by the housing agencies Freddie and Fannie who stand to lose the principal, not just the interest. They will use a little interest here.
But that is not anything compared to the loss of principal. The second point is, people have to go back to work. If they don’t have a job, they will eventually lose their home.
CAVUTO: Shouldn’t that be your focus?
GARAMENDI: Oh, absolutely.
CAVUTO: Let’s get people back to work and then these whole rework programs and the dicey history on them and the fact they tend to make a bad situation worse, maybe that...
GARAMENDI: No, they don’t.
CAVUTO: We have not improved the situation with the four rescue programs already out there. That is the bottom line.
GARAMENDI: What’s happening here is the president is taking one of the rescue programs, the HARP program, and reworking it, working out the kinks and the problems that existed in the earlier versions of it.
Will this work? We certainly hope so. It would seem to me that it would work because you are looking at people that are actually able to make their mortgage but cannot take advantage of the lower interest rates that now exist. They are probably paying 7 percent, maybe 8 percent.
CAVUTO: You’re right. Maybe it will. Maybe it will. But generally the history on these things is if you are digging a hole and the same result, you have to put that shovel down, right?
GARAMENDI: No, you are not digging a hole here.
And let’s go back to Franklin Roosevelt. He said if it doesn’t work we will try something else because we have a problem here. Let’s keep trying some new programs. This is a variation on an existing program. Will it work? I think it will certainly help.
As I talk to the constituents in my county, Solano County, one of the worst in the area, they still have a job, but they are really stressed and this gives them an opportunity to get out from underneath the stress or at least reduce the stress. The other thing is the job program. And we really need a jobs program. Unfortunately, it has been stalled in the Senate and the House of Representatives. I won’t tell you who. I think you and the American people know who is stopping that jobs program from going forward.