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Up next on The Journal Editorial Report the administration officially launch its foreclosure prevention program but will -- 275.
Billion dollar plan finally put up.
Floor under sinking home prices.
Plus unemployment continues to rise stock.
Continue to fall after five weeks in office have president Obama's policy become part of the problem.
And Democrats in congress have a nasty surprise for -- the first daughters.
Did well -- we'll have the latest in a battle over school choice The Journal Editorial Report begins.
Welcome to The Journal Editorial Report I'm Paul -- -- Obama.
My administration officially launched its homeowner affordability and stability plan this week issuing guidelines to lenders.
And mortgage service there's on how to modify the loans of as many as nine million struggling homeowners but will it stem the wave of foreclosures currently.
Drowning the US real estate market Sheila bear is the chairman of the FDIC NG joins me now from Washington -- chairman -- welcome.
I'm Paul thank you.
The foreclosure mitigation plan announced this week but judging by the mail them that we get at the journal a lot of Americans fear that this may reward people who.
Just borrowed too much money more than they could afford or.
We didn't even makeup artist claims on their mortgage.
Original mortgages how can you assure viewers that this.
Plan won't reward that kind of behavior.
Well I think it's restricted to -- occupied properties -- to be the primary residence.
It Wanda says that the borrowers to qualify for the glorious chapter document their income they have to provide information about their their household budgets.
So I think as the as part of the modification process the borrowers need to be validated as good faith.
Homebuyers sure we're using their home to live and not as a leveraged investment.
I think clearly no one wants to to ever -- problem behaviors that there's a red flag that -- divided bending any fraudulent situation before.
That that would be taken into account under the program that.
I think it is very difficult to try to go back some have suggested that you have to go back several years and try to kind of determine what the circumstances were in the when the loan was originally originated night is something that's practical -- why so why -- that practical because some well some candles deadline and that alone.
Well some people they edited if there is if there's a written but I think a lot of it was broker's telling them I don't worry we'll fill it out or -- Americans -- whatever you want.
And then a lot of people didn't I mean they've figured I think there is their silly if the the low doc no doc loans there was an open invitation for inappropriate behavior.
But not everybody did that serious I think it -- -- paint everybody with the same brush and say okay so all of you were gonna go back and make you -- justify yourself three years ago when this loan is originated.
-- biggest practical so.
Nobody wants to report fraudulent behavior and the FDIC actually is moving very aggressively against mortgage fraud especially third party for providers of mortgage brokers and appraisers.
There's been some problems here in -- IG as well as.
Our our legal authorities we get -- receiver for failed banks for very aggressively pursuing that kind of conduct.
If you try to go back and -- justify every single longest in trouble and I just something that's practical -- what about the those who scrimp and -- -- paid their mortgage on time and now let's say they may not qualify under this program it's a hate.
What about me why why why should I get a reduction in my mortgage payments.
Well I think this is a program that is going to help everybody in the sense that it's going to reduce the number of and a sister for closures this putting.
Downward pressure on home prices which is hurting us all.
And contributing significantly add to the current economic the recession that land so I think there is an indirect benefit for everyone.
I think the president did try to beyond lose its entrance of the reach.
Of the program so even for current borrowers with with relatively safe mortgages.
Who are not able to refinance into lower rates because their homes may be underwater they have sufficient home equity.
If their loans are guaranteed by Fannie -- Freddie Mac there's an opportunity for them to now refinance into lower rate to to help the category borrowers who worked current.
They can't take advantage of the lower interest rates so I think the administration has tried to reach out.
More broadly two acre -- farmers.
But I think you know over in united had this discussion before at the end of the day I think we need to determine what's in our economic best interest to do.
And to punish people who got along they couldn't afford and put another house on the on the housing market right now which is over -- inventory already.
Really just doesn't make any sense.
I would also add that there has to be a net present value analysis of the -- modification has been worth more than foreclosure is that -- to be camping rational decision before the Monica can't let me ask you about another issue which is a -- default because you've got John do in the control of the currency said recently -- after six months something like 37%.
Are in re default and as many as 55%.
Or thirty days delinquent what's your expectation about re defaults here and that'll put taxpayers on the hook.
Right well actually I think with the with the first of all regarding those numbers at 37%.
Number whereas the sixty day delinquency rate right our experiences he has succeeded delinquent loans to -- percent of those cure.
That is also statistic for statistics for anything that's called the loan mod.
And a lot of those loan modifications.
That that yes he's you know chance reports counter actually payment increases they've defined along modest broadly anything that changes contract terms.
And refining a lot of these things are called modifications are really just re capitalizing.
Late principal and interest -- the mortgage so what's your -- look at.
I'm sort what's your experience at -- -- -- -- you know he had been doing that now offers for several months and you have Bosnia certain expectation of the number re defaults is that this -- 30%.
You know it's were at the end of December December was 4% but they I'm sure the -- are going to go up -- still very early in the program right there will be there will be significant re defaults I think we've always said that the it security economy is going to contribute to that.
And some of these borrowers and distressed even with every modified -- May not make it but I think it's important again to look at the economics of the loan modification our experience of any Mackey is that we save on average about 50000 dollars.
-- -- even assuming I've read -- already have 40% which is higher than we think.
You'll actually experience and the reason makes economic sense is is because we can get -- a delinquent on to perform again.
The value of data over foreclosure value is significantly greater than any incremental loss she may have for waiting period of time to see if the long performs.
Or read a fall in and of itself really isn't a problem unless the housing market continues to go down.
That it does cost money because you for close later event at a lower price that is the big that is the big risk for taxpayers going forward because nobody knows how far this the housing prices are going to fall if they keep falling.
Then the taxpayers are gonna be on the hook for those that actually actually that actually the book that the president's program is our payments.
Only for as long as the long performs there is an insurance component.
That it is Healy the investors it will take Hawaiian sure the loss on -- -- fault.
And that the payments are actually.
Correlated to wear that along continues to perform heavily there is that there is insurance program that is.
Designed to carry -- sliver of loss that may be attributable to further home price decline the estimates that costs are about ten billion over the total 275.
But that is important to investors I think to get investor support -- this kind of program you needed to address the -- progress.
All right chairman -- thanks so much for coming mr.
My question -- when we come back the Obama -- economy rising unemployment falling stocks after five weeks in office by the president's policies.
Making things better or worse.
Five weeks into the Obama presidency of things are not exactly looking up the Dow Jones Industrial Average plunged to its lowest level in more than a decade this week and overall decline of more than 25%.
Since early January so just how much are the new administration's policies contributing.
To the continuing economic turmoil joining the panel this week Wall Street Journal columnist and deputy editor Dan and anger columnist Mary on -- Spiezio O'Grady editorial board member Jason Riley and columnist William -- Mary.
-- the things some of the things the administration this week announced a trillion dollar new Federal Reserve program for securitized lending on consumer and auto loans and other.
Details of its mortgage.
Billion dollars another rescue for AIG and another rescue in the late last week for city group.
Is any of this working.
Have you seen in the stock market.
You know if only we knew when Obama was -- opened his mouth.
We could make a fortune shorting -- the market now isn't that bad now come on.
It's pretty bad Paul and I think what's happening here is that the higher government spending which is implied in the stimulus.
It's -- people we know instinctively that that has to be paid for and they see that tax.
Propositions of a -- and that is that you put those two things together it is not good for risque.
At the implicit tax increases that are built into all of the spending the stimulus on nearly 800 billion in the 410 billion omnibus spending bill for two for for for 2000 ought to be saying that that is.
Weighing on investor minds.
It's when an investor minds and I think the broader public at you know as a whole.
Understands that all of this is going to have to be paid for they they know that it's not just money that's going to fall from the sky well it's it's interesting to contrast the market response -- public opinion polls Wall Street Journal how to pull out.
This week that said two thirds of Americans are hopeful about American about.
Obama's plans even though 70% are dissatisfied with the economy so at.
Least not yet but what -- -- blaming this administration for the economy now in six months -- a year the market is still in the tank if unemployment as high and so what that could change but right now it doesn't seem to be Obama's economy and a bush is a kind there's a lot of common sense -- that I mean obviously if he inherited a recession it's not his recession.
But that that the reason that stock market prices were important bill is that they look to the future.
And they say this -- these -- the future earnings this is what we we expect and it's a little disconcerting.
That's since early January.
When all the hope and expectation build up about this presidency the stock prices are down 25%.
No it's it's not it's not the measure of the economy but it's an important measure and it's an ongoing measures not just spike -- the editorial said.
It's going down look I -- and a talent a lot of wall streeters.
And on the main street you just see all these little businesses.
And they're all affected restaurants handyman.
All sorts of people that have enterprises and I think that they don't really in this really economy they don't see what this is going to do for them.
And every they're really hurting out there.
What about the sources of potential recovery and they exist -- -- some credit spreads into being careless or ask not a hundred dollars a barrel that's the equivalent of a tax cut.
You are seeing you if you housing prices fall by two thirds by cool but from their peak from according to one index them and people think -- 10% 12% but eventually.
They'll find the bottom right and then when they do you may begin to get a recovery so are we exaggerating our investors exaggerating the potential dangers here.
No I think both of both things are happening out what the market is probably reflecting a reality about prospects but nonetheless the economy in the US economy is not going to drop to zero.
It's going to come back him all recessions stop eventually under their own steam and then begin to come back.
And I think they're really just not a political calculation on the part of the White House people's keep asking them.
Why don't they aren't they afraid that the market is going to just destroy their standing.
Now if the if the economy comes back in the middle of next year at least begins to rise again.
And The Wall Street Journal poll suggested that something like 50% of the electorate.
Obama will not be responsible for until two or three years from now they'll simply pocket.
The the recovery of the economy and say the stimulus.
Put it like out.
Is there's something very -- what happened here couple weeks though Peter Orszag who is the president's point man on the budget was asked several times.
Aren't you worried that higher taxes can and damaged economy and he only says oh no don't worry they're not going to kick in until two after 2010.
And now the market seems that in a lot of people who might be committing capital now or in 2000.
Are -- know that okay -- -- they start doing better they're going to tax me NI -- Goes up Detroit I don't that's being until -- let me just put another thing on the table just a health care.
Market health care stocks they have insurance plans drug makers and just spent slaughtered.
In the last week since the Obama budget because of I think the uncertainty of what happens with national health care unit is that kind of inserting nobody's -- invested time ago now.
And I I think is you say uncertainty is the greatest the greatest poison.
And that's where I think the market is reacting to a month in.
We still don't really know the details what we know that.
One detail that they think we know it's going to cost a lot more.
But we don't know exactly how much when it's gonna end -- thing I worry about is the two lessons they seem to taken from previous democratic administration is for Clinton.
You can raise taxes and self growth.
He didn't spend enough money and I mean going to go to the to -- I think I like doesn't would you let us look like the worst of both where it is Clinton Clinton turn it around and connect.
Other positive things and -- -- and the change in congress right and Clinton have some things that offset that like trade and so forth and I don't see those offsetting.
Growth aspects of that you hardly ever hear the words growth you see the bottom of the market that bill let me -- -- market time.
-- know I'm not going to not to.
I I I caller anybody here.
Anybody who market will bottom by the end -- this year are well that's it but that's I didn't really don't -- Hold on.
Still ahead democratic senator Dick Durbin has been nasty surprise for to a Sasha and Malia Obama's new schoolmates and a putting the president in an awkward position when we come back the latest in the battle over school choice.
If Democrats in congress have their way Malia and Sasha Obama could soon lose two of their classmates at the elite Sidwell friends school in Washington buried in the omnibus spending bill making its way through Capitol -- language that would effectively kill.
The scholarship program that allows Sarah and James parker and many children like them to afford the private school tuition.
Created in 2004 the opportunity scholarship program provides vouchers to some 1700 low income children in the District of Columbia so they can attend.
Religious or other private schools giving parents their alternative to -- public school system that is.
Consistently ranked among the worst in the nation failure editorials in 2004 played a big role in getting this past.
Why do Democrats wanna kill it.
They hate it -- people that are for the -- unions hated you know they can't abide to Stephen a fraction of people getting.
A chance to escape from these schools.
It looks like it looked like the language was going to go through with no problems last night we had an eleventh hour reprieve from the on the bus didn't go through.
We'll see if an amendment comes up but I'll say one thing President Obama silence has been pondering all across district.
Ten and then.
Earlier this week to the Associated Press were Arnie Duncan the secretary of education side.
That he doesn't think these kids should be yanked out of the schools if their view is that they're satisfied with the program after getting an education.
So it it is think contrast what the with Obama who's been silent on it what we would bet that that's a question I want -- raise but.
How bad Jason.
DC's public I mean I've made bad as new works at -- well Troy that there awful as as you mentioned in in your hand show bomb in the NO seven I believe DC schools ranked last in reading and second to last in math scores and this is despite the fact that this went something like 14000 dollars and -- didn't -- highest levels in the in the one of the highest level double and a double about double vouchers to 750500.
With -- yeah which makes about a program a bargain for taxpayers and the other thing is the public schools do they lose money here.
If if if somebody takes their voucher and goes to a do goes to a private school as a public school loosening Nash now they don't lose -- necessarily as an effective -- -- deal was three party gave the the traditional public schools.
Money it gave the charter schools money and it gave the voucher program money so there was nothing taken away from anyone but the real shame -- that this program is working and it's hugely popular some like 45 applicants.
For every scholarship available parents are satisfied the evaluations that have come out so far about the program have been good and another one is due later this month.
And which is one of the reasons some Democrats like Dianne Feinstein are hesitant to to pull that that's where I wanted to ask about because this past in part because senator Feinstein of California broke ranks when Republicans ran congress and she supported it I think Mary Landrieu of out of Louisiana has also.
Supported it a lot of Democrats must know that this doesn't.
-- politically -- mean you're gonna take these kids and you're going to yank them out of the schools that their parents like the kids like why would the leadership.
Decide that this is a good idea or why would most other Democrats rebel against this -- -- -- we don't need this fight we got enough.
Well because and on the bus is a great place sneak it in there.
And all of us is everything everything -- there had been so people are voting on other stuff and so it's hidden there's not too there's not a direct vote.
On the vouchers.
That's why is this reprieve as interest think if senator Benson.
It's -- -- get through here's an amendment to remove the there about a senator Republican senate senator if his amendment is voted on at least it would have to go on the record.
But this is a great way to do if you want to take it from these people you talk him into this thing the death -- is now.
But people really won't feel it -- a year and a half from now.
Jason what's the evidence around the country and other experiments Milwaukee Cleveland some other parts of the country about vouchers how well at how well -- -- working it's clear that the kids receiving the vouchers are doing better than their peers who do not receive -- it's also that the programs are popular with parents want.
What's -- low income people -- -- taste of school choice they like it and they wanted to continue and that that's also true that these programs put pressure on the surrounding public school systems to improve.
Because both systems don't want to lose students about -- program so competition is working.
You know there's a lot of social policy in the stimulus bill and I looked into it to see whether there was anything related to this subject and you know what there is they want to do a study to see whether performance pay for teachers and principals work.
Right this is a good idea -- are going to undermine that that there's -- revision to ensure that no low income students are taught by inexperienced unqualified or out of field teachers meaning people who come in.
An alternative certification like account.
It's and so does the bottom line here that unless.
Barack Obama speaks up and says to his fellow Democrat to the privately or publicly don't do this.
This language killing that program is gonna get is likely to get -- I think I think that is.
I mean he needs to stand up.
He can do privately but tell them that he does not want this thing all right we have to take one more break when we come back our hits and misses of the week.
Winners and losers picks and -- hits and misses it's our way of calling attention to the best and the worst of the week -- first you.
We'll all remember all those college lectures and fell asleep then.
Don't worry about that anymore San -- college in Mexico has the solution it's called the micro lecture.
They have reduced online lectures to sixty seconds one minute lectures okay.
Now they introduce this and personal occupational safety and -- -- shot up to 400 written that these students who can doubt it.
I mean as say the minister said.
You know you get bored with Talking Heads these are more like snapshots.
Of learning now I can go on and on about this but actually my time -- -- up.
This happens and that could have pursued a -- a Mets for western civilization.
In the history of western civilization sixty seconds all right Mary.
This is amiss for toymaker Mattel just in case parents are worried that their daughters are not exposed enough toward declining culture -- and it tells bring out a Barbie doll called totally styling tattoos Barbie.
She comes with little butterfly -- is that you can stick anywhere on the doll's body -- -- now it -- There's that no -- no question that let parents want to put this kind of an idea into their daughters had at a very young age I'll be interested to see how many of these dolls sell Jason.
This is another mess four on the Supreme Court decision against Wyeth pharmaceuticals this week the court essentially said that a drug company can be held liable.
For the use of it's -- hasn't even if those lessons are are administered improperly by health professionals and even if they contain warning labels.
There have been approved by the Food and Drug Administration.
Now if that's the case that means that it's basically open season on drug companies which is great news for trial lawyers for bad news for drug innovation and public health all right that's it for this week's edition of The Journal Editorial Report thanks to my panel and all of you for watching I'm -- ago we hope to see you.
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