Excerpts of Reuters interview with Greenspan

WASHINGTON (Reuters) - Excerpts from a Reuters interview with former Federal Reserve Chairman Alan Greenspan on Monday:

IMPACT OF HOUSE PRICE DECLINES ON RECESSION RISKS:

"If indeed we do get a double-digit decline, which I think is a possibility, but not a probability, then indeed I would say that pressure on consumption expenditures, largely from a weakened wealth effect, would eventually bring the relatively modest growth rate now from a small positive to a negative.

"Earlier in the year, I was talking about a one-third probability of a recession, and it's come up somewhat, but it's still at this stage less than 50."

RISKS TO OUTLOOK:

"The greatest risk is indeed in the house price issue, because we have a very large overhang of essentially completed, unsold new homes which are deteriorating and which the builders will increasingly try to press on the marketplace, and that tends obviously to put pressure on prices.

"If we end up with, say, a 5 percent decline in prices, and a significant decline in housing starts which enables builders to clean out their inventories fairly quickly, then we're in fairly good shape. But if the whole thing festers, it will erode household balance sheets and eventually impact on what the critical support has been in this economy, consumer expenditures."

RISKS OF INFLATION IN CURRENT SITUATION:

"I don't expect an inflation surge. I just think we're bottoming out on the disinflationary pressures.

"As disinflation itself eases, inflation of necessity is picking up. And what that does is it alters the type of balance between unemployment and inflation, and it's going to make monetary policy a lot more difficult than it was during most of the time that I was chairman."

ON HIS COMMENTS ABOUT ADJUSTABLE RATE MORTGAGES:

"The context in which I was discussing adjustable rate was reporting on a staff study the Fed staff had made which indicated that the costs of maintaining a 30-year mortgage relative to adjustable rate (mortgages) over the previous year or two was exceptionably high, and that a number of borrowers who do not expect to be living in a house for two or three or four years would probably be far better off taking out an adjustable rate mortgage.

"Obviously if rates go up, that is a risk that the homeowners will be taking. But what I was talking about in those terms was not subprime, I was talking about conforming mortgages.

"A week later ... I got a question that asked, do you really think that adjustable rate mortgages are better than the fixed rate? And I said, no that was not the point I was making. I was discussing a very narrow set of circumstances, and I said, indeed, the times I've taken out mortgages, I've taken out a fixed rate mortgage, because I think the insurance that you get, while the price may be high, is worth it.

"Even more important is that -- everyone says I pushed the adjustable rate mortgage -- well if in fact I had, somebody who took out an adjustable rate mortgage and refinanced 18 months later would have made a profit, because the mortgage rate didn't move. Incidentally, there's been no trouble to speak of in adjustable rate mortgages in the conforming sector -- it's wholly in the subprime markets."

ON FED EASING DURING 2001-2003 COMPARED WITH THE PRESENT: