This is a rush transcript from "Your World With Neil Cavuto," February 18, 2009. This copy may not be in its final form and may be updated.
NEIL CAVUTO, HOST: FOX on top of a president trying to get on top of a housing mess that just seems to get messier, about 70 percent messier.
That is how much housing starts tumbled in January. The president wants to reverse that by doing this: spending upwards of $75 billion to help homeowners stay homeowners.
White House reaction now: Jared Bernstein is the chief economist for Vice President Joe Biden.
Mr. Bernstein, good to have you.
That is a lot of money.
JARED BERNSTEIN, CHIEF ECONOMIST TO VICE PRESIDENT JOE BIDEN: Yes, Neil, that is a significant investment in helping responsible homeowners stay in their home.
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The plan, as I think you have been articulating today, has a couple of different parts. One helps folks who are trying to refinance into lower mortgages. We know that family budgets are really squeezed right now. And these are people who have absolutely kept up their payments, but because the price of their home has fallen, they have been caught on the wrong side of the housing bubble. Their loan-to-value ratios now are too high for them to refi. So, we help them.
The other part is the financial stability plan, which you were just talking about.
CAVUTO: All right, but, obviously, most people in this country, at least over the past couple of years, have seen the value of their home decline. And I would dare say more than 9 million would be eligible, right, because, if everybody took advantage of this, the government would go broke, right?
BERNSTEIN: No, that's correct. So, what we have — what we have done here — you have to be kind of careful — maybe surgical is too — too strong a word — you have to be careful not to invest your scarce government resources here in folks who really we're not targeting.
What we are interested here are responsible homeowners who can stay in their home, who will be able to — to renegotiate a mortgage and pay a lower monthly fee, thereby avoiding foreclosure, which hurts them, devastates them, devastates communities, lowers the price of housing really across the nation.
CAVUTO: Yes, but even if they're current on their mortgage right now, just the fear that they might not be, they can get some help?
BERNSTEIN: Well, actually, that's an important piece of the problem.
One of the — one of the reasons some of things we have tried thus far have not worked is because they have been contingent on people being really quite far down the road toward foreclosure, delinquent or already — already beginning the kind of foreclosure procedure.
Now, the president shared a letter today from a woman who wanted to renegotiate, to modify her loan, so that she could stay in her home. This is a working person who is trying to get by. And the mortgage servicer basically said, look, when you are delinquent, come back. Now, that's the kind of...
BERNSTEIN: ... we want to make. We want...
CAVUTO: No, no, and I know your intentions are very good, Mr. Bernstein.
What I'm wondering, though, is, how do you avoid folks from taking advantage of this who...
CAVUTO: ... should not be taking advantage of this, or even deadbeats, right? I mean, let's say you're paying your mortgage on time and just the fear that you're underwater or potentially could be, is that all you need to sign up and get this?
BERNSTEIN: It's s a great question, Neil. No, it's a great question, Neil.
And the way we avoid that — I think we — we really got the incentives right on this one. The way we avoid that is, we kind of share the pain in terms of losses that will be incurred here between the government, between the homeowner, and between the servicer or holder of the mortgage.
Now, if you're — one of the things that the mortgage broker — I'm sorry — one of the things that the lender has to do for this program to kick in is that they have to take down the debt-to-income ratio that that borrower is currently servicing.
So, if someone is facing a — paying a — let's say, 50 percent of their income to meet their mortgage, the lender has to bring that down to 38 percent. OK. So, that's their....
CAVUTO: But why does the lender have to do that?
CAVUTO: I mean, it is not the — it is not the lender's fault there has been a housing collapse, right? And now, all of a sudden, the lender is — is going to have to bite the bullet for what has been a national decline, right?
BERNSTEIN: Listen, listen, let me — this is not simple stuff, so give me a second.
BERNSTEIN: The lender does not have to do this. This is voluntary.
If the lender wants to stave off a foreclosure and keep a steady stream of income coming in from that borrower, who is a — someone who wants to stay in their home, does not want to walk away, has the income, has the income to pay a modified mortgage, the lender come opt into this program and do that.
They take the first share of the haircut. They get that loan down to 38 percent. We then come in and split the difference between 38 percent and 31 percent. We get that 31 debt-to-income ratio set up. So, now we have a lender who is servicing a debt that is 31 percent of the income for borrower. Now they have got a modified loan.
CAVUTO: Very quickly, by this definition, there's going to be a heck of a lot more than nine million people who will want to take advantage of this, right?
BERNSTEIN: Well, these are our estimates about — of who we think will be opting into this program.
I mean, think about it. If someone has a very, very high debt-to- income ratio, it is — it's quite unlikely that the lender is going to bring them down to 38 percent, right?
So, we are talking about people who are probably fairly close to being able to make it. We are going to push them over the edge.
CAVUTO: All right.
BERNSTEIN: And that is the — the kind of opportunity we want to bring.
CAVUTO: All right.
Be careful what you wish for, Mr. Bernstein. You might get tens of millions more than you planned on, right?
BERNSTEIN: We will certainly cross that bridge when we come to it.
CAVUTO: All right. Very good having you, sir. I appreciate it.
BERNSTEIN: My pleasure.
CAVUTO: Jared Bernstein, chief economist for the vice president.
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