All In   |  May 02, 2013

Housing works?

Former New York Governor and Attorney General Eliot Spitzer, former Senior Vice President for financial innovation, planning and research at the Fannie Mae Foundation Jim Carr, and Rep. Elijah Cummings, D-Md., join Chris Hayes to discuss whether there is some real change finally coming down the pipeline for homeowners.

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This content comes from Closed Captioning that was broadcast along with this program.

>>> the ongoing drama of banks screwing homeowners, one of the greatest stories of the recession continues to go on. joining me at the table, former governor eliot spitzer and from the fannie mae research, jim carr and congressman cummings. this is what would happen if we can get principle reduction, discount the amount people owe on their homes. you asked for that.

>> i asked for that report. the findings were very clear. the congressional budget office , which was independent said it's a win-win-win. a win for homeowners and taxpayers and a win for the economy. they recommended we do this and be done as fast as possible.

>> the question is, why hasn't it been done? a few theories. one is the dimarco theory of fha fhaa. and the other is the administration's theory and this book about tim geithner talking about a program created by the administration as part of the t.a.r.p. money to help people work through foreclosures. we estimate the banks can work through 10 million foreclosures provides they dohelp foam the runway for them.

>> all my discussions with the administration, they claim they are in disagreement with dimarco . he put out a report where it seems to say to me it showed excellent evidence we should have principle reduction and the went the other way.

>> you borrowed $200,000 for your home and your home is now worth $100,000 rather than reducing your interest rate or monthly payments, the bank says we will write down this loan, no longer a $200,000 loan, a $100,000 loan or $150,000 loan.

>> they made it clear from the treasury department to dimarco they were fully supportive of a principle write-down and they felt f ha would require administrative costs and go beyond the dollar set assigned the hamp program and the treasury department would help.

>> explain that. there's this program passed as part of the bailout called hamp. they spent essentially none of this money, homeowners haven't been help ed with this program. the administration said whatever you need to do.

>> we will go beyond the program administratively to help it work. dimarco 's pushback, this is an administrative cost to us plus the homeowners and it was a net plan to the taxpayers for a billion dollars but they said forget that we will help you further.

>> the key point of the ceo and any analysis done for the great disaster this whole thing has been, it's actually best for everyone, including the banks themselves if you actually do the hard thing and say that $200,000 loan, we're writing it down, it's now $120,000.

>> i hate to disagree. i don't believe the administration. tim geithner, from the very first moment did not stand up once for fundamental reform either financial services sector or mortgage market or housing market . all he did was listen to wall street saying give us money . it was okay with him if wall street got all the bailouts and reducti reductions to principle reduction they needed and the moment homeowners needed it was moral hazard . the original sin was they should never have given the bailout to the banks absent the fundamental structural reform and principle.

>> i agree with the last part he said. we should have had some kind of criteria in there. we did not do that. keep in mind the other thing, the part of dimarco 's mandate is to help homeowners. he is legally -- has the opportunity in the law to do principle reduction. and minimize foreclosures. that's in the law.

>> it's in the law. i want to hammer this home to people. we're talking dimarco fha, this is one dude presiding over half the mortgages in the country. that is the situation right now. there is a guy whose name is ed dimarco who presides over half the mortgages in the country.

>> that was then and that's true. the original bailout was flawed because from the very beginning, the bank's problem was foreclosures. if we dealt with foreclosures we would have dealt with family problems of bankrupt and foreclosures and the bank's problem losing money. last year, the treasury was very strident saying we want this program to work.

>> they were strident almost --

>> almost the point of no return. we may not be there. remember, we have an estimate of $2.2 billion from cbo right now. we're not even beyond the point now. one of the points i want to make out that's really important is that that cbo study showed the more you help the borrower the more you actually return to the taxpayer. from the $2.2 billion is on the largest concession.

>> add one other dimension to this. to the consent there is a consensus the stimulus worked but way too small because it did not provide the keynesian stimulus we needed, the other piece of this puzzle was homeowners were seeing the value of their critical asset diminishediminish ed the economy would have come back dramatically faster.

>> how do you feel about mel watts?

>> i feel very good about mel , one of the most outstanding members of the congress and has an excellent reputation, knows how to cross the aisle and work with others. he has been against predatory lending and played a major role in dodd-frank. well situated for this job in financial services .

>> the job to oversee half of america's mortgages.

>> definitely prepared.

>> here's the question. is he going to be? there's this great reporter who reports on this who can be very depressing but very clear-eyed on this because it's a depressing topic and said the senate is not going to confirm this guy. what do you think?

>> i think mel has a good chance of getting the nomination, getting it. it will be a battle, don't get me wrong. you don't need all the republicans. keep in mind senator byrd has already --

>> from south korecarolina.

>> from north kore from north carolina .

>> personal relationships.

>> if you loved john kerry and so happy to see him, welcome into the club.

>> one last point, i hope he's confirmed and move forward in principle reduction and the big theoretical question, what role would the government play prospectively. the banks love all the guarantees they get, why not also there?

>> we have developed a system that was kind of building the airplane, as it was in flight or repairing the airplane that was in flight in the wake of the great recession where a lot of stopgap measures have been made where the government has a lot of mortgages on its balance sheet. we're now basically guaranteeing most of the mortgages out there.

>> over 90%.

>> government guaranteed. in the long term what has to happen from a policy perspective is to steer away from that, right?

>> exactly. you want to make sure if you're going to bring private capital to the market you want access and affordability to it.

>> we don't go back to the bad old days right away.

>> people say bring private capital back so we can avoid a taxpayer bailout but the taxpayers have been baling out the private sector .

>> thank you. that is "all in." and the ra ch"the rachel maddow show" starts now with melissa. so nice to throw to you.