Federal Bailouts for High-Risk Homeowners?

This is a rush transcript from "Your World with Neil Cavuto," July 23, 2007. This copy may not be in its final form and may be updated.

NEIL CAVUTO, HOST: This is a FOX News Alert: Before they go belly up, bail them out? We already know the federal government is seriously considering now helping those deep in debt doo-doo.

Now indications at least six states are considering the same — the price tag, half-a-billion bucks and growing. Taxpayers could be footing the bill, but supporters say, act now and we will avoid an even bigger bill, supporters like New York State Senator Liz Krueger, who is getting the nation's attention right now. She's applauding this effort.

Senator, good to have you.


CAVUTO: Is it a bailout?

KRUEGER: Well, when you talk about a proposal that a number of states have to provide mortgages to people who are at risk of foreclosure, so that they don't lose their homes, no, it is actually an investment in mortgages that will get repaid to the government. And, so, it's protecting communities from going down the tubes.

CAVUTO: What about people who are dutifully paying their mortgages on time and see that their next-door neighbor is getting the equivalent of a pass?

KRUEGER: No, this would not be a pass. This would be a new refinancing of a mortgage.

The truth is, we are talking about people who wanted the American dream. They wanted to buy a house. They wanted to have a stable home for themselves and their families and improve their communities. But there have been disingenuous, predatory lenders out there who have not been following the rules of the game and who have been getting people to sign on the dotted line of mortgages they can't afford.

CAVUTO: But this would not be the first time, Senator, that has happened, right? Where do you draw the line between people who might have not done their homework and dotted the I's and crossed the T's when they signed a deal? And now well-intentioned folks like yourself are saying, we will help you. We will protect you.

KRUEGER: Well, actually, what we are saying is that there are unscrupulous people out there who have been hustling Americans to sign on the dotted line for deals that were not the deal they believed they were, and that it's the obligation of the government...

CAVUTO: Yes, but we live in a country, Senator, where we are free to make our mistakes, right, and free to be stupid, too, right?

KRUEGER: Well...

CAVUTO: So, what I am asking here is whether tax dollars are going to bail out those who simply got snookered, either of their own stupidity or some unscrupulous means?

KRUEGER: No, I don't think that what New York State intends to do. New York State intends to make available legitimate mortgages that must be paid back under the rules of New York state law.

CAVUTO: So, is this forcing private lenders to renegotiate, or is it New York State stepping in and saying, with taxpayer dollars, we are going to make right people who screwed up?

KRUEGER: This is New York State saying, we're in the mortgage business. We have been. Some people got directed through unscrupulous means into the mortgages they can't afford.

We are going to put them in legitimate mortgages, like their neighbors, that they can afford. They are going to pay back their mortgages. And we're not going to see communities collapse.


CAVUTO: OK, but, Senator, turn it around. Let's say there is a neighbor who also has one of these adjustable-rate mortgages. He or she is struggling to pay it off, doing everything by the book, trying to make those monthly payments on time. That person gets no relief from you, but the person who falls behind does.

KRUEGER: No, that is not the proposal in New York State. It would not be an across-the-board offer to anybody who has fallen behind in their mortgage arrangements. It would be a specific package for people who have walked into, unknowingly, wrongful deals.

CAVUTO: But how do you know? Someone can say, hey, I did not know what I was signing. And, in fact, they're just — they're just late.

KRUEGER: No. You can look at the paperwork and see whether it was a legitimate mortgage or a predatory lending mortgage.

CAVUTO: But all these people signed on the line saying, all right they have a mortgage that could adjust, whether it's liber loans or anything like that, that would adjust upward. And they know what is at stake here. And now they are saying, gee, you know, I can't make the payment. There's a good senator who will bail me out.

KRUEGER: No, this is not a bailout, again. This is a legitimate mortgage.

CAVUTO: If you did not do...


CAVUTO: Well, wait, Senator.


CAVUTO: If you didn't do anything, these people would be in deep doo- doo, right?

KRUEGER: Yes. We're very concerned that people who were ripped off...

CAVUTO: All right. So, now, they won't be — right, now they won't be in deep doo-doo, because you are providing state funds to make sure they're not in deep doo-doo.

KRUEGER: No. We're working with the banks, who are also willing to offer legitimate mortgages to people.

CAVUTO: All right. How are you working with them? You put up some money, right?

KRUEGER: No. Actually, New York State is talking about putting up enough money for maybe 500 foreclosures. There have been 50,000 foreclosures in New York State in the last two years.

CAVUTO: Granted. But some money — some money, Senator, is money, right? It is not manna from heaven, right? It's taxpayer money, right?

KRUEGER: Well, no, New York State has been in the mortgage business through the state mortgage agency. This would be an expansion of that model. You would not get this for free. You would have to make your mortgage payments. You would have to pay your interest.

CAVUTO: But, Senator, what is to stop me from saying, boy, Senator — she is a great senator; I am running behind on my credit card payments? Someone else says, you know what? I am running behind on my boat payments.

KRUEGER: We are not making...

CAVUTO: Someone else says, I'm running behind on my auto payment.

KRUEGER: No. We're not making mortgages...

CAVUTO: There you come to the rescue.

KRUEGER: ... on boat payments or credit card payments. We are only talking about preventing foreclosures.

And do you know a recent study showed that every foreclosure costs government $30,000?

CAVUTO: So, you are trying to avoid this becoming worse of a problem?

KRUEGER: We are trying to avoid this becoming worse.

We're trying to protect the stability of communities and neighborhoods. Where I might be the house foreclosed next to yours, your property value goes down. So, you need to care about that.

CAVUTO: But, in the end, Senator, would you argue, let buyer beware?

KRUEGER: If everyone was following rules, but they have not.

This is a sub-universe of illegal activity. The government should be coming in much more strongly to prevent these kinds of loans from continuing. And, so, this is just a piece of the puzzle. We need to do better consumer education. We need to hold the mortgage lenders...


CAVUTO: But we're all big boys and girls here, right? We know what pot we go into.

KRUEGER: Have you ever done a mortgage? Do you know how complicated the paperwork is?


KRUEGER: What if your lawyer was working for your mortgage agent, who was working for the bank, who made money on how much they got you to sign for?

CAVUTO: All right.

But would say some people were duped by that and others weren't? So, should the ones who were not duped by it and the ones who made their payment essentially foot the bill for the ones who were?

KRUEGER: I think the government should come in and make sure that no one ends up in a predatory, unscrupulous mortgage deal.

And I think it is the government who should be out there saying, if we can make sure you can get into a legitimate mortgage, and you're going to pay back the government, then that's in the best interests, not only of that homeowner, but of everyone in their community.

CAVUTO: All right. We will see what happens.

Senator Krueger, thank you very much for coming by.

KRUEGER: Thank you.

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