Randall S. Kroszner, Ph.D., is Norman R. Bobins Professor of Economics at The University of Chicago Booth School of Business and was a Governor of the Federal Reserve System from 2006 to 2009. In this exclusive interview with Alchemy contributing writer Andrew Barber, Kroszner says housing won’t bounce back until the securitization markets opt for greater standards and the fates of Freddie Mac and Fannie Mae, the government-controlled housing finance agencies, are decided. “If they do come back, are they going to be gods or monsters?” he wonders.
From a big-picture perspective, where do you think we stand presently in the foreclosure cycle?
A very large number of U.S. homeowners are currently underwater on their mortgages and are either facing foreclosure or are already in the foreclosure process. I believe that this is something that is not going to be resolved quickly because I don’t see the property market bouncing back anytime soon
Let’s put it this way: Things are likely to flatten out, but that suggests that people who are underwater now and are having difficulty paying their mortgages are likely to continue to face those challenges for the foreseeable future. So that means the foreclosures are going to be with us for quite some time.
I think the unemployment rate is likely to stay fairly elevated for quite some time. We’re starting to see reasonable recovery in economic growth in terms of GDP, but much like in the early 2000s, we’re seeing persistently high unemployment rates. This is going to pose another challenge for homeowners in the foreseeable future, as those who are out of work for long periods of time will have more difficulty repaying their mortgages.
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