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.
In this way the feds become the biggest landlords in the country and can drive out any private landlords-- it is pure unadulterated Marxism, and it has been done before, and I might add done with banker's cooperation. Bankers would lick spittle just to handle the paper-- like Bank of America will become for real, the Bank of the United States a wholly owned govt. bank working for/with fannie and freddie. This is what Dodd-Frank was setting up in the first place. I would like to get my hands on the game plan of these Marxists-- perhaps someone is collecting the operation in one place. We HAVE to stop this marxist, please people. Wake up, man your posts-- fight.
Why not just have the ‘give back’ as points payed on the loan (and possibly rolled into the principal) rather than putting a cap on future equity.. which would only discourage people from maintaining their property. I just object to the idea of basically having a ‘partner’ (the government) sharing profits in my housing investment. Very un-American.
Government sponsored enterprise (GSE) mortgages are mortgages that are insured by the federal government
The two main providers of GSE mortgages in the United States are Freddie Mac and Fannie Mae. These two entities account for billions of dollars in government-insured home loans.
Read more: What Is a GSE Mortgage? | eHow.com http://www.ehow.com/about_6593152_gse-mortgage_.html#ixzz1iYSWsBcI
and oh by the way our credit union informed us in July that our mortgage had been purchased by Fanny, so we became wards of the federal govt
All my life I have worked, and paid mortgage payments to the letter. Now this mack daddy lying marxist will not only take property, but re-value mine after a lifetime. I am sick of this S**t.
We have got to make our Congress stop funding this. Stop funding this— de-FUND the left. Let the banks write down the mortgages and re-sell them.
I dont get it
they hype about putting money in every homeowner’s pocket
and then talk about taking it back out with the other hand by eliminating the mortgage deduction
d.oh. where my cheese go?
Precisely. How are they going to pay the reduced mortgage, when they don’t have a job NOW? The plan is to hand out this “package” to buy votes. He has got to go, period.
There aren’t many “pure” options here, it’s a mess to put it mildly. The purist approach would be to let it go down and rebuild from the ashes. As appealing as that is to some, and I admit to occasionally thinking that way myself, the years of getting from point A to point B are likely to be miserable and even frightening. There is no guarantee that our current form of governance would survive such an ordeal, and there’s no guarantee that we’d like what arose in its wake if it didn’t.
Thats what you get when you elect a traitorous Marxist bastard as president..
Serves America right.. maybe they will learn something.. maybe not..
The two main providers of GSE mortgages in the United States are Freddie Mac and Fannie Mae. These two entities account for billions of dollars in government-insured home loans."
You are mistaken. The only mortgages that were insured by the government were Ginnie Mae. And possibly one smaller gov't agency the name of which escapes me right now.
There was no government guarantee for Fannie and Freddie paper. Those two GSEs had been spun off to stockholders years ago and were listed on the NYSE.
The decision to bail out Fannie and Freddie was entirely a political decision, done by Dubya and his administration. There was absolutely no legal requirement for the American taxpayer to get stuck bailing out the stockholders of Fannie and Freddie.
We’re being run by the “Outfit”. Dumbasses never really considered “US”. Will be swift, but brutal.
I’m not sure where the “bailout” is. The part that is described is a refinancing. 4.2% isn’t as low as the currently available rate, so what the government would be giving away would be risk assessment — the forced payment of a higher interest rate to cover the possibility that the mortgagee might default.
Given that the lower interest rate might well prevent defaults, and given the government has no interest in foreclosure anyway, this wouldn’t be the worst thing in the world.
The refinance is “free”. Of course, most of us could get free refinancing from our existing mortgage companies, until the government imposed all sorts of new onerous reporting requirements. I refinanced years ago and paid $300. I refinanced in 2010 and had to pay almost $4000. The government doesn’t have to meet it’s own reporting requirements, but that isn’t really a “cost” to the government.
The article describes some feature where the homeowner, in exchange for the free refinance at a marginally above-prime interest rate, would give up part of thier home appreciation. Not sure at all how that would work, unless part of the plan is forgiveness of principle in exchange for principle recovery on sale. That would be annoying.
I don’t see how a different appointment makes a difference here though. Are they seriously saying that Obama can’t order his acting head to do this, but he could order an appointee to do it?
Which raises a question. Just who were the stockholders of Fannie and Freddie that they would allow the management to mismanage their corporation so badly.
The Fannie and Freddie books had to be either frightful or fraudulent. Recall that a whistleblower brought their bookkeeping to the attention of Congress in 2005 and there were extensive hearings. Why did the stockholders not take notice of this fact?
You are hardly “a ward of the federal govt”. Your credit union sold your mortgage to Fannie in order to free up their capital for a new loan. Fannie bundles the mortgages it buys and sells the resulting MBS to investors. You could well end up being the ward of China, assuming that they are still crazy enough to trust American mortgage paper.
I think John S Mosby in post #21 has stated the real issue and with the other comment about the elimination of your mortgage deduction, it’s pretty clear the intent is not to save people money on their mortgages but rather to own the paper and dictate terms.. of which they would have unlimited say, not to mention the hundreds of fees that would be assessed for doing and not doing anything. Sounds like a total disaster and the idiots who see only skin deep will line right up as usual.
You did not refinance for free or anywhere near it....
When lenders offer you low or no closing costs loans, they are not offering you the same rate as someone who is willing to pay a full set of closing costs.
You pay for it in the rate...
The paper is already de facto government owned and terms dictated for a majority of mortgages issued in this country. That’s the elephant in the living room as far as how we ended up as we have. If you’re regarding me as one of what you termed the idiots who only see skin deep, you’re mistaken. We’re already in so deep I’m sort of amazed that you see some sort of stark line with this proposal. Do I “like” it? No, but it’s better than what’s been done thus far, and better than several alternatives. It might actually help, unlike other efforts.
Are there ulterior motives with such a proposal? Always, with everything coming out of government, and finance has become an arm of it over the past three years, in case you need to be reminded of that. Some would call that fascism, and they’re not entirely wrong. Other societies have live to fight another day and cast it off, perhaps that’s possible here.
There is no guarantee that letting it all go down will lead to anything favorable. I see a lot of harm in that, to my family, to innocent people who played no role in creating this stupidity, nor have they benefitted from it. I’m open to looking at and picking apart proposals that might mitigate the future damage. If that makes me an idiot in your book, well, too bad, but you’re wrong about that.
“Which raises a question. Just who were the stockholders of Fannie and Freddie that they would allow the management to mismanage their corporation so badly.”
Well anybody can own stock and most people do through retirement accounts, insurance policies or mutual funds. Try going through a 10-K once and see how often you would do it. Only professional investors are going to devote the time and energy to do that, and plenty of them aren’t going to bother, they will just trust analyst reports.
“The Fannie and Freddie books had to be either frightful or fraudulent. Recall that a whistleblower brought their bookkeeping to the attention of Congress in 2005 and there were extensive hearings. “
Well they were leveraged far beyond what was safe. IIRC the leverage issue was what the Bush administration wanted to address.
“Why did the stockholders not take notice of this fact?”
Some cynics believe that large stockholders knew that they could get the taxpayer stuck with a bailout. That’s what campaign donations bought them.
I agree there is no easy way out of the housing mess. But having a massive government program as part of the 'solution'.. well, history if anything should teach us much here. I do not trust it and I would NOT participate in it. Better to do it on your own even if it costs a little more.
Let me understand this. When I bought my first house, my Mortgage Rate was 9%. Somehow, I made the payments.
Now you can get a 4% 30 year Mortgage. Not just to purchase, but to Refinance. This is a NO COST Loan. The money has never been cheaper.
What are they going to do next, PAY people 4% to take out a loan? An entire population with their hand out. The Liberal dream come true. Please Mr. Obama, may I have more of that guy’s money?
How did this country sink so low, so fast? It is surreal.
The guy’s hellbent on enslaving the generations ahead.
I don’t think this is about mortgages. I think this is about government takeover of land. It’s a form of nationalization and confiscation.
then eHow at my link is wrong and you should write and correct them
I was merely tyring to clarify the acronym GSE the author of the article used but never defined
But that is a different matter, really. In my prior case, I was refinancing with the same mortgage company. They did not do an appraisal, they did not do a credit check, and they didn’t have a loan officer involved. It really cost them nothing.
They sent me a 3-page form to fill out, I filled it out and notarized it, and mailed it back.
Now, it could be that I didn’t get the absolutely lowest rate I could. I wasn’t worried about it, because it cost me nothing, so I was saving a lot of money on my interest payments and I could always refinance again if I found a lower rate.
My point was that I did the exact same thing after Obama. I went to my existing mortgage company, and asked them to simply refinance my existing mortgage for the same amount. BUT, because of the new regulations designed to “protect” me, the lender needed to do a new appraisal, a new credit check, and a new title search. They had over a dozen forms that had to be filled out and filed with the federal government. They had a dedicated loan officer who had to come to my house and do a formal closing. All of that cost a lot of money, wasted money.
After all, they already had my loan. They knew my history, they knew the value of my house, they already had the risk. They didn’t need ANY of those checks, although those checks certainly did give them a slightly better idea of my current circumstances. But as a business, they weren’t interested in that new information. They needed it only because of government regulation.
Because of that, in retrospect I figured out that I could have gotten a cheaper deal by switching companies, since others have a more streamlined process and can charge less. There was absolutely ZERO advantage to me working with my existing lender, because they had to treat me as a new customer anyway.
Worse, even though my loan was for less than half of the assumed appraised value of my house, they couldn’t even to a drive-by appraisal, they had to send the appraiser into the house.
I still came out ahead, but just barely; the only reason I still went through with it was to get money out of the house for a college loan (because Obama took that over as well, so my home mortgage was a LOT cheaper interest than a college loan would have been, AND it was deductable because I was still below the original loan amount).
Or people who had the credit to run their mortgage through a private bank anf not Fannie/Freddie...
The $350 savings, taken in the context of this statement, would be an annual savings at $29.17 per month.
Now, who in his right mind is going to lose control of their bowels over $29.17 savings per month???
That eHow article is indeed wrong. I’m more surprised when someone gets the facts right regarding Fannie and Freddie.
The government agencies that do insure loans are the FHA, the VA, HUD, and some farm related loans with the Ag Dept. Ginnie Mae deals only in this insured paper, so although it doesn’t do the insuring itself its product is gov’t insured.
Ginnie Mae is a government owned corporation, as opposed to being government sponsored like Fannie and Freddie. People assumed that Fannie and Freddie were guaranteed like Ginnie Mae but they weren’t, not that it turned out to make any difference.
I agree with your statement:
“I went to my existing mortgage company, and asked them to simply refinance my existing mortgage for the same amount. BUT, because of the new regulations designed to protect me, the lender needed to do a new appraisal, a new credit check, and a new title search”
The new mortgage laws have certainly screwed consumers, not helped!
Then this Reuters article is also wrong, for it also defines Fanny and Freddy as “GSE’s”
Fannie and Freddie, government-sponsored enterprises (GSE) that are chartered by Congress, buy loans from lenders and repackage them as securities for investors, which they then guarantee. The aim is to provide a steady source of funds for the mortgage market.
“That would certainly piss off the people who have been diligent about paying their mortgages.”
Just rewarding poor decisions while punishing frugality and maturity. What do you expect from marxists? ;-)