Skip to comments.January Surprise: Is Obama preparing a trillion-dollar, mass refinancing of mortgages?
Posted on 01/04/2012 7:46:26 PM PST by AU72
This could be just the beginning. If President Barack Obamas legally dodgy appointment of Richard Cordray to head the consumer finance agency should stick, it may open the door to more such actions. Heres Jaret Seiberg of the Washington Research Group:
To us, the most important takeaway from a recess appointment of Cordray is that the President could use this same maneuver to put a housing advocate in charge of FHFA.
And why is that important? The Federal Housing Finance Agency is the regulator and conservator of Fannie Mae and Freddie Mac. And the FHFA currently has an acting director, Edward DeMarco. If Obama replaces him with a housing advocate via the same recess appointment process, heres what might happen next, according to Seiberg:
That could lead to a mass refinancing program for agency-backed mortgages that would go well beyond the existing HARP program. That could hurt agency MBS pricing and result in higher financing costs going forward. Yet it also could be a big boost for the economy and housing going into the election.
Indeed, my sources tell me the Obama administration has been eager to implement just such a plan, but needs to have its own man heading the FHFA to make it happen. The plan would be modeled after one originally devised by Columbia University economists Glenn Hubbard (a campaign adviser to Mitt Romney and AEI visiting scholar) and Christopher Mayer. In recent congressional testimony, Mayer described how the mass refinancing plan would work:
Under our plan, every homeowner with a GSE mortgage can refinance his or her mortgage with a new mortgage at a current fixed of 4.20 percent or less. To qualify, the homeowner must be current on his or her mortgage or become so for at least three months. Other than being current, we would impose no other qualification or application, except for the intention to accept the new rate (that is, no appraisal, no income verification, no tax returns, etc.).
Mayer estimates that some $3.7 trillion of mortgages would be refinanced. Thats right, this would be the Mother of All Mortgage Refinancing Plans. It would help roughly 30 million borrowers save $75 billion to $80 billion a year. As Mayer puts it: This plan would function like a long-lasting tax cut for these 25 or 30 million American families.
On his website, Hubbard says the plan would have an immediate fixed cost to the government of $121 billion. And he calculates the economic impact as follows:
1. We estimate that 72 percent of owner occupant homeowners would be eligible to refinance at no cost to them. Their monthly mortgage payments would fall by an average of $355, for a total national fiscal injection $7.1 billion each month.
2. The typical borrower would reduce his or her principal and interest payments by about $350 dollars, a total reduction in mortgage payments of nearly $100 billion per year.
3. The macroeconomic stimulus effect should also include an additional housing wealth effect. At the low end of our estimates, improved mortgage market operations would reduce house price declines by 10 percent. With an estimated aggregate housing valuation of about $18 trillion, housing wealth would increase about $1.8 trillion relative to what it might fall to without this program. If we assume a relatively low marginal propensity to consume out of housing wealth of 3.5 percent, U.S. consumption would rise by $63 billion relative to what would otherwise have occurred.
4. Combining these estimates gives a total macroeconomic stimulus of as $118 billion per year in lower mortgage payments and any new consumer spending due to a housing wealth effect. In addition to the direct macroeconomic stimulus, jump-starting the stalled housing market will increase employment in a variety of industries that depend on housing transactions (mortgage and real estate brokers, home supply companies, moving companies, etc.) as well as increase the efficiency of the labor market by reducing impediments to households moving to take another job.
Bottom line: Talk about a political and economic game changer in this presidential election year. Obama could offer a trillion-dollar stimulus as measured over a decade that would directly and immediately impact tens of millions of Americans suffering from the housing depression. Cash in their pockets. Imagine the electoral impact on key states, such as Florida, suffering from both high unemployment and devastated housing markets.
And the beauty part for Obama? He wouldnt need approval from Congress to do it. Even though many Republicans would scream that the plan would reward irresponsible homeowners who took on too much leverage indeed, talk of a housing bailout is what launched the Tea Party movement they probably couldnt stop it. And Hubbard already has an answer to the moral hazard issue: This proposal requires borrowers to give up a share of future appreciation in order to participate. Lenders must eat a portion of the losses as well. Everyone gives a little bit.
The 2012 battle for the White House is looking razor close. A mass refinancing plan might be enough to tip it to Obama
That would certainly piss off the people who have been diligent about paying their mortgages.
Congress better put a stop to this crap!
Obama can’t just pretend he can spend Trillions without authorization.
I thought that that is the issue: recess. The Senate is not in recess.
If it hadn’t been for those stupid go-nowhere stimuluses there might actually be room for something like this. But the card is maxed out and the lenders are sending out dunning letters.
Maybe they’d get a sop too.
That’s the problem - 0bambi went around Congress with this appointment, and will the appointee will try to implement this program without the approval of Congress.
I’m one of those people who went broke making all of my payments. This one’s a barfer, but I should be used to it now with this administration.
So what’s the intent here? Is it to pay off everyone’s mortgage, give us all new government backed mortgages? Is this a government takeover of all existing mortgages?
Where does the money come from to pay off everyone’s mortgage and then start them over with a new mortgage? That will cost into the trillions of dollars up front. Who has that kind of money? (The US Treasury does not have that kind of money, as we’re running trillion dollar plus deficits now. There is no money in the government checking account)
It would also piss off the people who bought mortgage bonds.
If this had been put forth three years ago, I'd have even gotten behind assisted buy-downs on principal owed for underwater properties so the market would be freed up in the wake of the bubble bursting.
It likely would have cost less than the tens of trillions tossed down the black hole of the financial industry, and would have gone a long way toward mitigating the effects of the financial crisis.
Too late for that now, a principal buy-down, but a rate buy-down will actually help people and free up a little discretionary spending each month to offset the strange combination of deflation in assets and inflation in food and fuel.
The downside is the same as the upside, though. This puts the stimulus into the broader economy, and there has been one heck of a lot of it, so the risk of igniting genuine inflation and having it take root is real.
When these homeowners refinance with no appraisal, no income verification, etc at no out of pocket costs. Who will buy these mortgage notes if there is no data behind it? Don’t tell me the taxpayer will be on the hook to guarantee these notes. Who will take the refinancing loan application and process it? Will he do it for free?!!! How does one prevent liar loans being created by this refinance program that has very little verification oversight????
CRA jobs are still available at the FDIC.
Hussein will work as hard as possible to destroy the Constitution, traditional Judeo-Christian ethics, and capitalism.
If this is such a win win for Obama why hasnt he already done it?
An injection of money? But doesn't refinancing the mortgages mean that the banks and Fannie and Freddie who hold the current loans along with the investors in the mortgage backed securities will end up with $7.1 billion dollars less per month? So how is this an injection of money into the economy? It looks like it is just moving money from the right pocket to the left one.
Recasting existing notes would be the most likely course, imho. How that would be “encouraged” is an interesting question. It could be said to reduce toxic assets on the books, so there’s that.
They don’t need money. Printed money is obsolete. It is just a bunch of x’s and o’s in a computer at that amount. Just move a few 0’s around here and there and PRESTO...housing problem all fixed.
That kind of meddling has to have adverse effects.
I sure hope Republicans are taking really detailed notes!!!
What’s good for the goose...
The election is less than 11 months away now, and approaching FAST.
Would you want that sort of largesse to come devoid of any consideration, there not being a price to pay for the recipient, so to speak?
We’re looking at a decade or more of problems as it stands, with people stuck in a house they can’t afford to sell for the price that would sell it, and that has consequences as far as reduced incomes and unemployment.
I wouldn’t advocate any meddling at all, if it weren’t for the dire consequences of prior meddling threatening to collapse the whole house of cards. Ideally, we never would have been here in the first place, with 20% down, income verification and the mortgage originator holding the note to maturity.
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