Fox News' Neil Cavuto misrepresented the projected cost of a federal "housing rescue package" by saying it was going to cost "300 billion bucks," while an on-air graphic read, "House lawmakers set to pass $300B housing bill; bailout?" In fact, while the legislation would authorize the FHA to insure up to $300 billion in homeownership retention loans, the Congressional Budget Office estimated that the program would cost the government $2.7 billion between 2008-2013.
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During the May 7 edition of Fox News' Your World, host Neil Cavuto misrepresented the projected cost of the Federal Housing Administration (FHA) Housing Stabilization and Homeownership Retention Act. Cavuto falsely asserted, "[Congress is] about to spend a lot of capital -- try 300 billion bucks of capital, the price tag of a housing rescue package virtually assured a thumbs up in Congress, and equally assured a thumbs down by President Bush." During the segment, an on-air graphic read, "House lawmakers set to pass $300B housing bill; bailout?" In fact, while the legislation would authorize the FHA to insure up to $300 billion in homeownership retention loans for qualified homeowners, the Congressional Budget Office estimated that loans that would be insured under the new program would total about $85 billion, at an estimated cost to the government of $1.7 billion between 2008-2013. Including administrative and other discretionary costs, the CBO estimated a total cost of $2.7 billion for the program, not "$300 billion." During the discussion, author Chip Cummings noted that $300 billion sounds like a scary number, but it's $300 billion in insured loans, which actually is a drop in the bucket. The Congressional Business Office [sic] says that this may cost taxpayers maybe about $1.7 billion over four years."
During the May 8 edition of Your World, Cavuto stated, "The House has just approved that $300 billion housing rescue package that will help struggling homeowners, even some struggling lenders," without noting how much the bill is estimated to cost and without correcting his assertion from the previous day that Congress is "about to spend ... 300 billion bucks of capital, the price tag of a housing rescue package."
From the Congressional Budget Office:
Typically, much less than 100 percent of those eligible actually participate in federal benefit programs. Moreover, many factors would influence participation in the new program though, ultimately, the intersection of interests of both the mortgage holders and borrowers would determine the amount of participation.
Mortgage holders will evaluate loans that are eligible for the new FHA program and determine if the program would provide a better return than modifying the loans on their own, despite the risk of default. They will also evaluate whether the present value of the proceeds stemming from a modified loan under the new program is greater than or less than the value of proceeds from a foreclosure sale. Expectations regarding trends in house prices will greatly affect such calculations. Because mortgage holders may use different models to project future house prices, CBO expects that the behavioral responses by mortgage holders to the new program will vary considerably.
Borrowers also would have to decide whether participating in the program is a favorable option. In particular, borrowers would have to evaluate the profit-sharing provisions under the program and determine if forgoing some future profits on their homes is an acceptable arrangement even if foreclosure on their existing loans is the only alternative. Furthermore, some of the riskier borrowers with higher ratios of debt-to-income would be required to make six timely payments on the loan before being guaranteed by FHA; invariably, some of those borrowers would be disqualified from participating in the new program.
CBO estimates that fewer than 40 percent of the 1.4 million eligible loans would be refinanced under the new program. Following a reduction in the principal amount of those loans to make them affordable, CBO estimates that approximately 500,000 loans would be guaranteed under this legislation with an average loan amount of $170,000 each. Thus, CBO estimates that FHA would require about $85 billion in loan commitment authority over the next four years to implement the program. The legislation would authorize FHA to provide up to $300 billion in loan guarantees under the new program.
Using an estimated subsidy rate of 2 percent and our estimate that demand for loan guarantees would equal $85 billion over the next four years, CBO estimates that implementing the new loan-guarantee program would cost $1.7 billion over the 2008-2013 period, subject to appropriation of the necessary amounts.
President Bush has threatened to veto the bill.
From the May 7 edition of Fox News' Your World with Neil Cavuto:
CAVUTO: Back to Washington and the Capitol, where they're about to spend a lot of capital -- try 300 billion bucks of capital, the price tag of a housing rescue package virtually assured a thumbs up in Congress, and equally assured a thumbs down by President Bush.
BUSH [video clip]: I will veto the bill that's moving through the House today if it makes it to my desk, and I urge members on both sides of the aisle to focus on a good piece of legislation.
CAVUTO: OK. So he says dead on arrival. Is this a bailout? Well, real estate investor Wayne Rogers says it is. Blue Chip Cummings -- but Chip Cummings, I should say -- disagrees. Blue Chip would be a better name if you just went with that. He's the author of --
CUMMINGS: I'll take it.
CAVUTO: -- Mortgage Myths. All right, so, Wayne, what do you think of this?
ROGERS: I think it's a bad idea. Listen, Congress abdicated their responsibility, you know, back in the '90s when they lost the Glass-Steagall bill -- when they canceled the Glass-Steagall bill. We didn't learn anything. And there was a Depression in 1929, out of --
CAVUTO: Glass-Steagall, we should say, separated investments from traditional banking.
ROGERS: Correct -- the deposit institutions from investments and all of the other things that banks could do. And to bail out the banks, if you will, and to bail out the borrowers under this without doing -- correcting the major things that are underneath it is just idiotic.
CAVUTO: All right, idiotic. Chip, what do you think of that?
CUMMINGS: Well, I agree that certain aspects may seem idiotic, and $300 billion sounds like a scary number, but it's $300 billion in insured loans, which actually is a drop in the bucket. The Congressional Business Office says that this may cost taxpayers maybe about $1.7 billion over four years. But we've got to start somewhere.
From the May 8 edition of Fox News' Your World with Neil Cavuto:
CAVUTO: All right. The House has just approved that $300 billion housing rescue package that will help struggling homeowners, even some struggling lenders. The president said the way it stands right now he would veto that in a nanosecond, unless some major changes are made. So we'll see where that soap opera goes, but that easily just passed the House.