In CU Speech, Greenspan Contrasts Previous ARM Talk

Former Federal Reserve chairman Alan Greenspan was cautiously optimistic about an economic recovery while speaking to CUNA's Government Affairs Conference this week, in stark contrast to his last appearance at the GAC when his suggestion that homeowners try adjustable-rate and other nontraditional mortgages helped spark a flurry of exotic residential loans. Mr. Greenspan said that high-income individuals with growing investment portfolios and companies with rising stock prices are driving the recovery, which he described as "extremely unbalanced." He noted that the nation is recovering economically but the "really forceful" areas of recovery "are reasonably dead" — namely the housing market and autos where sales are subdued. "Small businesses also continue to face challenges, and while things aren't getting worse for them, the environment is showing very few signs of getting better," said Mr. Greenspan. His appearance before the group came roughly six years after he last spoke at the GAC when his much-watched remarks sparked a flurry of ARM and nontraditional mortgage purchases by borrowers hoping to buy homes in the booming real estate markets around the nation. "American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage," Mr. Greenspan said then. "To the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home."